What is best for the future?

nurseneedshelp

I need to decide what to do for the best and need some help please.

I have a flexible interest only mortgage of £75,000 on my old family home, which I have rented out since June 2013 at £1200 per month. The current property value is approx. £320,000 and the outstanding balance is £63,000. I can make further over payments and borrow back if required. This mortgage can be changed without penalty.

I bought a house with my partner in October 2012. We have an interest only mortgage of 280,000. My outstanding share is 73,750.

I have a lump sum of £35,000 due in around 3 months from a pension plan.

What would be best to do, so many options!! Sell my old home to pay my mortgages and invest the lump sums? Increase my BTL mortgage to pay off my residential mortgage share and continue to rent out my property as it will be tax deductible? Use the pension lump sum to pay off some of the residential mortgage owing?
Any thing else!
Arrgghhh......

Thank you for your help

holly_hobby

nurseneedshelp wrote: »

I have a flexible interest only mortgage of £75,000 on my old family home, which I have rented out since June 2013 at £1200 per month. The current property value is approx. £320,000 and the outstanding balance is £63,000. I can make further over payments and borrow back if required. This mortgage can be changed without penalty.

Ok, you say you have a property worth 320k, with a 75k interest only mge, which is currently rented out (under consent to let or a buy to let mortgage ?). But you then say that the os balance is 63k.

nurseneedshelp wrote: »

I bought a house with my partner in October 2012. We have an interest only mortgage of 280,000. My outstanding share is 73,750.

No, you are legally liable for the full 280k, whatever private arrangement you have on the division of funds on sale.

nurseneedshelp wrote: »

I have a lump sum of £35,000 due in around 3 months from a pension plan.

What would be best to do, so many options!! Sell my old home to pay my mortgages and invest the lump sums?

All depends on your attitude to risk, capacity to absorb loss, how long you want your capital tied up for and what type of access do you want to it(eg property is a pretty ill-liquid asset), etc, etc, etc ....

nurseneedshelp wrote: »

Increase my BTL mortgage to pay off my residential mortgage share and continue to rent out my property as it will be tax deductible?

That would be be a tax effiicient method and is widely used. But interest is only deductable from rental recipets, on a total mge equal to the value of the property when it became part of the business (ie available for let), anything in excess of this sum is of course permissible from a mortgage point of view (subject to rent stress test and LTVs), but is not a permitted HMRC deduction from gross rental reciepts.

nurseneedshelp wrote: »

Use the pension lump sum to pay off some of the residential mortgage owing?

Yes, you could, of course you should formally document this injection for a later division on sale - and as I said earlier, from the mge point of view, you are both jointly and severally (singularly) responsible for servicing the entire mge debt, regardless of what any private arrangement may be.

Additionally, if the LTV is sufficiently reduced as a result of the injection, you may well qualify for a lower priced product form your lenders existing borrower portfolio. The benfits would need to be bottomed out with regards any ERCs or associated charges, but may be worth exploring.

You could alternatively (subject to ATR, affordaility etc ), and if you have a low mge payrate, also consider depositing the capital into a low risk account, which provides a net (of tax) return in excess of the mge payrate, and use this to make lump sum reducions (subject to ERCs) - then when/if the mge rate reaches parity with your returns, you then withdraw and paydown the mge balance. (as I say subject to ERCs).

I would suggest having a chat with your own IFA on investment options and tax issues - and your solicitor regarding documenting capital injection you want reflected in any division of equity on disposal.

Hope this helps

Holly x

longtermplanner

nurseneedshelp wrote: »

I bought a house with my partner in October 2012. We have an interest only mortgage of 280,000. My outstanding share is 73,750.

I have a lump sum of £35,000 due in around 3 months from a pension plan.

wow that is a huge mortgage for someone approaching pension age.

I agree with holly hobby that you need to think of the mortgage debt on the house you are living in as being fully your, because the mortgage company is very unlikely to agree to taking your name off the mortgage if you clear "your share" of £73,750.

It's really hard to make good suggestions without knowing how much rental income the BTL is bringing in and whether you and partner are going to be able to easily afford your joint mortgage after you are retired.

FWIW (and without knowing the details that isn't a lot!) my instinct would be to sell the BTL and clear as much as possible of the mortgage on your real house.

Obviously doing that you have cleared your partner's share of the mortgage. If you have lived together for 30 years and everything is join you may not mind about this, but as you specified a very unequal division of the mortgage it sounds as though you are a more recent couple so you want your finances pretty separate. In which case the solution is to document the 'debt' your partner owes to you. Either your partner could then carry on repaying the debt to you (instead of paying the mortgage - partner wont be any worse off) or you would just own different shares of the house, so that when you die your share can be left to your children.