Buy-to-let, let-to-buy or remortgage?

Laurence_WMF

I own a house, without mortgage, worth around £300,000. I have had an offer accepted on another property for £103, 000. My intention is to rent out the new property for six months/a year or, then relocate to it and let out my current home.

I will be taking out a mortgage for at least a half of the pice of the new property. I would like an interest-only mortgage. Should it be

1. Buy-to-let
2. Let-to-buy
3. Residential remortgage of current home?

How will choice of mortgage affect tax?

Any advice on whether to go for a greater or lesser mortgage/deposit ratio?

Many thanks,
Laurence

Cornucopia

If you intend to rent out the new property, then your options on that are BTL or Buy outright (possibly with funds from a remortgage on the existing property). BTL is generally more tax-efficient as you pay tax only on the profit after mortgage interest payments. The optimum position re LTV will depend on your overall tax position, rent, mortgage rate, etc.

You cannot get a Let-to-Buy mortgage on your existing property unless it is your intention to move out in the immediate future.

Laurence_WMF

Thanks alot, Cornucopia. That is very helpful.

If I took out a residential remortgage on my current home, then let it out next year, would I then be able to claim tax reduction for mortgage payments?

somethingcorporate

You'd need consent to let from the mortgage provider so something to factor into who you choose to take a mortgage with.

Cornucopia

Laurence_WMF wrote: »

Thanks alot, Cornucopia. That is very helpful.

HTH - I am going through a virtually identical transaction at the moment.

If I took out a residential remortgage on my current home, then let it out next year, would I then be able to claim tax reduction for mortgage payments?

Yes, as above, you'll need Consent to Let from the lender, who may charge fees and/or an increased mortgage rate. You'll be able to offset the mortgage payments and fees against rental income for the purpose of assessing the taxable profit.

holly_hobby

If you intend to use a mortgage to pch your new property and let it from outset, then you must source a BTL mortgage.

Interest only (with no repayment vehicle) on BTL is perfectly acceptable (as it is unregulated lending) - although you may wish to consider how you will redeem in the longterm. Affordability will be based on the rental income (although some lenders require you to have a min earned income too), and most if not all will want you to have an existing mortgage or demonstrable mge history for payment profile purposes.

Once you move into the property that is currently let, you will need to advise the lender, whom will switch the mortgage onto a residential basis subject to status checks (there will be admin charges and an ERC if your chosen BTL product has ERCs or the tie in period hasn't expired).

If you (or a fellow applicant) do not have any mge history, sourcing a BTL will be difficult, so you may wish to instead release the monies from your current home, via an equity release remortgage.

As this is regulated borrowing, affordability will instead be based on your earned income. The associated mge interest (ie that relating to the sum directly invested into or associated with the BTL) will be a permitted deduction against rental income, along with all associated costs incurred in arranging the mortgage, purchase and legal fees re the BTL - ensure you retain records and keep a clear audit trail between the equity release from your own home and BTL investment - especially if you release extra funds that are not utilised within the business.

IO on a residential mortgage is more difficult, as you will need to demonstrate to the lender that there is a suitable repayment vehicle/plan in place (which can be the sale of a separate unencumbered property), whilst some lenders no longer accept IO business.

If you subsequently move into property no2, and rent prop no1 , you will need to seek consent to let from your lender (if you envisage selling in the short term), or switch/remortgage onto a BTL if you intend to keep this as a let unit for the forseeable.

I would advise using a mortgage broker, and as you appear to be new to rental, a tax practioner to guide you on self assessmetn registration and reporting, and permissible deductions etc.

Hope this helps

Holly

Laurence_WMF

Thanks very much indeed for all that, Holly. Most helpful!

Laurence

Laurence_WMF

If I take out a buy-to-let would I be allowed to transfer the mortgage to being based on rental on my current home when I move from current home to smaller property and let out current home?

Thanks again,
Laurence

holly_hobby

Mortgages aren't transferrable from 1 property to another - and you can't port a mortgage product to a property you already own (as porting is for simultaneous sale and purchases, although some lenders do permit a small delay between the transition from sale to onward purchase).

However, if you don't have a current mortgage sourcing a BTL may be difficult in any event.

Is there a problem in your income supporting a remortgage on your primary residence ? As if not, this would be the way I would arrange this (also the fees associated with a residential (re)mortgage are typically lower than BTL borrowing) - although as the propety is currently unencumbered you won't qualify for any fee free remortgage deals you may see marketed by various lenders.

Hope this helps ...

Holly

Laurence_WMF

holly_hobby wrote: »

Is there a problem in your income supporting a remortgage on your primary residence ?

Yes.

Thanks again,
Laurence

holly_hobby

Then you'll have problems all round ... as BTL mge lenders also have earned income requirements in some format.

See a broker whom you can disclose your income issues and (legitimate) sources to.

Holly