Buy to let on owned house

someadvicereq

Folks,
we own our house outright after the mortgage was paid off. We were planning on selling the house and moving to a bigger home (and would need a new mortgage).

I was thinking it might be better to keep the mortgage free house long term in the hope prices would rise a bit, and rent it out.

So, the house is roughly worth £90k. I would be looking to borrow £50k in a buy to let mortgage, and use this £50k as a deposit for a new house.

First off - is this possible?

Secondly, the mortgage (interest only) repayment would be about £150 a month (rates are £50 a month + LL insurance @ £20). Rental income would be £400 - 450 a month.


So a possible £200 a month 'profit' is possible. Assuming its rented out 10 months of 12 months then potential profit is about £1800 a year, but will prob be about £1000 a year if you factor into some repair costs etc.

Not a massive profit, but some room for interest rate rises after a 2 year fixed.

Anyway - how does this seem as a plan. I guess its a gamble that the house prices will rise over the next 3+ years. Lets set aside the potential issues of being a landlord for the time being.

Thanks for any advice.

BitterAndTwisted

Borrow more. You could raise a BTL mortgage for 75% of the property's value and offset every penny of the interest against the rental income for tax purposes. Provided the anticipated rent is 125% of the mortgage payment. Interest rates are due to rise but rents are soaring.

What rates are £50 a month?

someadvicereq

So the lender will allow me to use the borrowed money to buy a different house?

Sorry rates are £60 a month where my house is in N. Ireland. Well - its £600 a year but its paid over 10 months.

Alot of the better Buy to let mortgages seem to be for 60% LTV? How do they determine the value of the property?

G_M

someadvicereq wrote: »

So the lender will allow me to use the borrowed money to buy a different house?

Yes.

Make sure you have a clear audit trail to show HMRC that the money raised was used to purchase the BTL - then you can offset the interest against rental income.

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someadvicereq

G_M wrote: »

Yes.

Make sure you have a clear audit trail to show HMRC that the money raised was used to purchase the BTL - then you can offset the interest against rental income.

But the money raised will not be used to purchase the BTL - it will be used to buy a new house for me to live in?

kingstreet

someadvicereq wrote: »

So the lender will allow me to use the borrowed money to buy a different house?

Sorry rates are £60 a month where my house is in N. Ireland. Well - its £600 a year but its paid over 10 months.

Alot of the better Buy to let mortgages seem to be for 60% LTV? How do they determine the value of the property?

You get better rates at 60% than you do at 75%, but a lower mortgage and rate means less expense and more tax.

The more you borrow on the let, the less you have to borrow on your private residence, so getting a lower loan to value and better rate on that, where you don't get tax relief.

You need to look at the overall situation, not the let to buy in isolation.

I suggest this would best be tackled by a whole market mortgage broker.

someadvicereq

Thanks - so a trip to the one stop mortgage shop then?

I'll have to explore this further, as it would enable us to move house without being in a chain. I think this could give us more buying power, and also enable us to move quicker.

It will also allow us to buy a house when the prices are 'low'. And hopefully if they do start rising slowly then we would be able to sell the rented house at a better price.

I'm not sure how easy it is to sell a house that has been rented though. Might put off some buyers?

Actually the situation is more complicated than tI had initially though - what about Capital Gains Tax?

1. My wife and I have lived in the property for 7 years
2. My parent bought the house so we could pay off the mortgage ( negative equity but we paid a % of the shortfall and lender was happy).
3. Parent will gift the house back to me (generous but their decision).
4. Will I therefore be liable for any CGT when I eventually sell the property, assuming I make more than £10k of the price she bought it for?

G_M

someadvicereq wrote: »

But the money raised will not be used to purchase the BTL - it will be used to buy a new house for me to live in?

Sorry - misunderstood.

Get tax advice.

00ec25

your £50k mortgage on your old house will be eligible for tax relief even though you spent that money on buying your new residential property. (technically called "withdrawing capital from the rental business")
Given the 25% minimum requirement for a BTL mortgage then you could increase your borrowing to £67.5 and still get tax relief on the extra. Basic maths will tell you if the income tax saving from having an extra 13.5k of debt interest on the rental business and a bigger deposit on the residential property so less interest payable on that will be offset by a higher BTL interest rate because your BTL LTV will be higher - these are the sorts of financial investment appraisal tests you must do if you want to go into the BTL business in anything other than as rank amateurs

someadvicereq wrote: »

Actually the situation is more complicated than tI had initially though - what about Capital Gains Tax?

1. My wife and I have lived in the property for 7 years
2. My parent bought the house so we could pay off the mortgage ( negative equity but we paid a % of the shortfall and lender was happy).
3. Parent will gift the house back to me (generous but their decision).
4. Will I therefore be liable for any CGT when I eventually sell the property, assuming I make more than £10k of the price she bought it for?

so at the moment you do not own the property - your parent does

when the parent gifts it back to you then your parent will definitely face a CGT liability for themselves based on the difference between what they paid to buy it from you and its full open market value at the point they gift it back

when you eventually sell it then you too would face a CGT bill since the break in your ownership cancels out your previous private residence relief so you can no longer claim letting relief and so would eb exposed to CGT on the whole gain between its value when gifted to you and what you sell it for, less the personal allowance as you know. The gain would be split between the 2 of you assuming you are both owners