BTL - Interest or Repayment (Confused!)

drummer_666

kingstreet wrote: »

For which you will struggle to find lending from a BTL lender. They are looking for readily-lettable property which will be good security for the loan.

If you want development finance, that's a commercial proposition.

I wouldn't use a BTL mortgage! As it's not a BTL...
Standard residential mortgage. Carry on as I am and live in it while working on it

kingstreet

In which case be careful that if the surveyor suggests a retention, you have sufficient funds to cover the period of the retention as you'll need to increase your deposit to bridge it.

drummer_666

I didn't need retention for this one, but if need it in the future it won't be a prob as will have money sitting in the bank after this sale, that I'll keep growing slowly! Putting down 20-25% deposits anyway but thanks

wasn't the best living in my house with no kitchen for 4 months but was ok. No hot water for 6 weeks got a bit annoying, but hey I saved myself several hundred pound, moving out of my rented house sooner lol

holly_hobby

Ok, so its not actually BTL finance that you're after ?

Its essentially development capital - which is (as Kings. has rightly stated)actually commercial finance, which is charged at commercial rates.

Additionally, as the property would be pchd in the format of a property developer (ie express intention for onward shortterm sale for gain), any net gain will be declared under your earned income SA return and taxed under INCOME TAX at your highest rate on dispoal, but not CGT. If however you refurbed and then went on to let it for a significant period, any subsequent gain on disposal would be assessed under CGT regs.

You also need to be aware that HMRC can and will investigate past returns, if evidence suggests from LR that the length of ownership & sale of several properties by an individual, over what would be otherwise be considered a relatively short and unusual time frame for a true primary residnce, and will get out a great big shovel .... so be careful if you intend to operate your business under such a format, and intend to rely upon PRR to avoid any tax liability.

Moving to the mge, well technically if you from outset intend to obtain a residential (resi) mge to finance the pch of a property, that you intend to refurb/tidy up and sell on - would amount to mortgage fraud. This is because (contradicting your mge app) the property has not been purchased as, and is not actually intended to act as your primary residence (and that doesn't include the period you may decamp there whilst the works are being done !), but ir rather a temp one and business venture, whilst you complete works and untill you find a new buyer .

Setting that aside, in obtaining a resi or even BTL mge, the property will need to be habital and considered suitable for mge purposes by the surveyor. This means and already in situ, a functioning kitchen, bathroom (inc functioning sanitary ware), suitable elecs ( ie not the old 2 core or that upon inspection considered unsafe), no structual issues, no roof issues, no D&T probs. To which all or any of the above (and more), would result in either a full or partial retention - requiring additional capital injected to complete the pch.

None of us here want to be wet blankets, far from it, and I know that some of the info here will throw a spanner in the works and be disappointing to you, BUT you must appreciated most of us are talking and commenting from a professional viewpoint, and hopefully have raised points that you may not have otherwise considered, which nevertheless are extremely important to your future plans.

Hope this helps

Holly

drummer_666

Thanks for taking the time to write that Holly

holly_hobby wrote: »

Ok, so its not actually BTL finance that you're after ?

Yes, that's what I was asking for advice about, but it's not something I'm going to do for a few years

holly_hobby wrote: »

Additionally, as the property would be pchd in the format of a property developer, any net gain will be declared under your earned income SA return

Yes, income tax would be paid.

holly_hobby wrote: »

Well technically if you from outset intend to obtain a residential mge to finance the pch of a property, that you intend to refurb/tidy up and sell on - would amount to mortgage fraud.

Ok, didn't know this.

So even though paying income tax, I would need a commercial mortgage? How much harder are these to get than residential? It seems wrong that it should change anything much by the banks, seeing as I'd still be boring the same amount of money, still have the same full time job etc.

holly_hobby wrote: »

Setting that aside, in obtaining a resi or even BTL mge, the property will need to be habital and considered suitable for mge purposes by the surveyor.

Yes, I'm aware of needing a basic kitchen and the other bits and pieces needed to obtain a mortgage. Although what is D&T?

holly_hobby

D&T = Damp and timber

drummer_666 wrote: »

So even though paying income tax, I would need a commercial mortgage? How much harder are these to get than residential? It seems wrong that it should change anything much by the banks, seeing as I'd still be boring the same amount of money, still have the same full time job etc.

This is not in relation to what basis any tax is due, but rather the perceived exposure for the lender. In that any property which is not your primary residence (which they believe a reasonable person would continue, or endeavour, to service even in times of tight finances), represents riskier lending in you got into financial difficulty etc.

Commerical rates on what would be a semi-comm unit, would be via the commerical lending arm of the lender, with a rate subject to circa minimum +1.5% above SVR/BMR base (ie there won't be any product available). Commercial finance in todays climate is generally (but not altogether) harder to obtain, unless you have a proven track record in the sector.

Even if you thought o/s the box, and attempted to source a refurb/renovation mge through the likes of Buildstore, the issue remains that you are essentially sourcing business and not personal finance.

As a side note, and in relation to above, the original interest only debt does not increase as time passes, it remains ringfenced if monthy interest repayments are maintained throughout the term as per the contractual agreement, the only time the os balance would increase would be if there were subsequent arrears/charges that had been rounded up onto the os debt itself as part of a debt management arrangement.

Overpayments don't always make an immedaite reduction to the os balance for interest purposes, depending upon the amount of overpayment and/or rest period, they may applied at a time following the initial lump sum deposit.

Hope this helps

Holly x

drummer_666

Oh ok damp, my house had damp, had to dig up the whole kitchen floor and some rising damp but didn't need retainer?

But surely it would be my main residence... because it would be my only residence. I could understand the higher risk to the lender if it was a second house, but not when it's my only residence

thank you though, got more digging to do

holly_hobby

The fundamental issue is that you are attempting to source finance to support your development business (which is the only reason you have bought the house, to refub and sell on for hopefully a profit).

The fact you will be residing in the unit (if habital) whils the works are conducted, is secondary with regards to both the mge and tax due on any net gain on disposal. Although yes technically it is your primary residence whilst the works are ongoing - so with regards the mge finance side of things you may wing it (although it will involve a fib or 2), HMRC wise ... doubt you'd swing it for PRR/CGT purposes. (but it would all depend upon the time span between pch and sale, and how HMRC assess the basis of acquisition and residency).

Hope this helps

Holly x