Best way to clear utilise rent income

scoops82

Hi MSE Friends


Advice wanted please


Background Info
I was purchased my first property at 24 for £88k, stupidly on an IO mortgage. For the first 5 years that was all I could afford to pay and then I made some overpayments only to return to pay the IO amount so that I could save for a house.


Earlier this year I used a redundancy payment and my savings plus a loan off the parents to purchase and renovate my first house (the house purchase is shared with my GF but all in my name as I paid the deposit and a bigger chunk of the mortgage and bills). The flat is mine. (Who said romance was dead lol)


Current Scenario


Flat - Paid £88k
Value - £80k
Negative Equity £8k
Current Int Rate = 2.5%




Because of this I have rented out my flat so that I am able to cover the IO payments and not lose the capital I invested at the start. However I can make about £150 profit each month after Agency fees.


House Int Rate 4.19%


Should I use the profit from the flat to make capital payments, if I was to sell the flat would I lose out on this due to capital gains?
Am I better off keeping it as savings?
Using the profit to overpay on the house loan...potentially losing out if me and my GF were to ever split.....unlikely but its only been 18 months.


Your advice / views would be appreciated.


Thanks
S

dimbo61

You bought flat for £88K ( NO DEPOSIT ? )
You made overpayments Well some but still owe £88K as you are in Negative Equity.
Have you told your mortgage lender you are renting the property ?
HMRC ?
If you sell within 18 months of moving out you have no CGT to pay and will pay little if any because the flat has not gone up in value!

scoops82

Hi

I paid £88k with a £6k deposit, the o/S mortgage is about £77k and the value has decreased from £88k to £80k based on the sale of the last two flats in the same block so I supose im not in negatiive equity butbstand to lose my deposit. In the period of time I lived there I only made overpayments for about 18 months.

Mortage lenders are aware and changed onto a but to let for a temporay period of 3 years which will get reveied. HMRC will be aware when I send a tax return in for 2014/15 - should I tell them sooner?

I may well sell the flat after the 3 year period but my intial plan is to sell it at the end of the IO motrtage term (22 yeras left) and pay off the balance and hopefully have some profit to offset againt the new mortgage on the house an maybe use the excess rental income to also overpay on the house mortgage but im not sure if this is the best way to proceed.

Any advice is welcome.

Thanks