Can I do this ?

nottslass_2

Please feel free to tell me if I'm being a bit thick here.......

Ok, so I have 30k that I want to Invest in a BTL property (i've been approved on a btl mortgage)

I have seen what looks like a good rental investment for 70k,with a rental income of approx 425 pm

Now the thing is,I was fortunate enough to buy my home outright for cash (right to buy ) and was wondering if I could take out a mortgage on my current property(lower interest rate).

The repayments on a "normal" mortgage would be just less than £300pm and I could realistically over pay by 600pm and could therefore have finished paying off the mortgage in less than 6 years !!

It all seems a bit simple to me,what am I missing ?

BitterAndTwisted

The lower interest-rate isn't advantageous as that's the only part of a mortgage which you can offset against the rental income for tax purposes.

monty-doggy

Do you mean take out a mortgage to fund the rental purchase?

I'd be very careful, as this seems like its fiddling the system!

Werdnal

monty-doggy wrote: »

Do you mean take out a mortgage to fund the rental purchase?

I'd be very careful, as this seems like its fiddling the system!

No, its perfectly legal and above board. If OP wants to re-mortgage to release equity from their own home, there is no restriction what so ever what they spend that money on - new car, foreign holiday, 2nd property - doesn't matter at all.

However, as mentioned above OP, the interest payment is allowable expense against the tax you may be liable for on the rental income you receive, so lower interest may not actually benefit you.

00ec25

monty-doggy wrote: »

Do you mean take out a mortgage to fund the rental purchase?

I'd be very careful, as this seems like its fiddling the system!

leaving aside the ethics of the fact its an ex RTB property so the equity did not come from their own efforts, what the OP proposes is perfectly legal and is not fiddling any system.

The OP has equity tied up in the property they currently own outright. They can release that equity to fund a start up business (their BTL property) and would be entitled to claim the interest charge of the mortgage as an eligible cost against the BTL rental income for tax purposes

monty-doggy

Would there be implications as the original house was purchased as right to buy?

I'd just check it all out first, but if it works out, then you've done really well, although it does seem unfair the tax payer funding the second property, but that's another debate.

InMyDreams

BitterAndTwisted wrote: »

The lower interest-rate isn't advantageous as that's the only part of a mortgage which you can offset against the rental income for tax purposes.

I don't understand this logic (although I've seen it stated many times) so would be grateful for further explanation.

Whilst it's true about only offsetting the interest, that's because the interest is a business expense which in turn lowers the net profit. Surely minimising expense is advantageous?

If the interest rate is lower, you pay more income tax, because your income is more. Surely that's the point? To maximise the income? Wouldn't the extra tax you pay only be a percentage of the extra income you've made due to the lower interest rate?

So a lower interest rate might not be as advantageous as it may at first appear, but I can't see how it isn't advantageous at all. Or am I oversimplifying this?

Werdnal

monty-doggy wrote: »

Would there be implications as the original house was purchased as right to buy?

I suspect there is no restriction on taking a mortgage against this RTB property, as they now own it, and the equity in it.

G_M

* there is nothing tostop you raising equity against your RTB home.

* You can use the equity to buy a BTL.

* You can offset the interest element of your mortgage repayments against your profits

* it makes perfect sense to use a lower interest rate if you can - yes, there is less against tax but the extra tax you pay will be less than the saving you make from lower repayments.

New Landlords (information for new or prospective landlords)

nottslass_2

Wow,thanks for the info guys - I currently earn 8k (pt) so don't pay tax on my earnings and therefore have a couple of grand of my personal tax allowance left.

As for the tax payer funding my investment I can't quite see how that is - I wouldn't need to "use" any of my discount as equty to fund my btl property.
BTW I have lived in my house for 25 years and in that time paid far more in rent than i would have done if I'd brought it and re payed a mortgage over the last 25 years........

monty-doggy

Yes but I have rented privately for 15 years and no one would hand me a discount even if I lived here another 20 years!

It's a sensitive subject, and it does annoy many people who work hard, pay over and above what council tenants pay, and then public funded housing gets sold off at a fraction of the market value.

I don't see why a discount should be offered, just because you've lived there a long time!