Overpay Buy to Let?

tiz

Hi,

I jointly own a property with my sister, and we'll shortly both be living elsewhere and plan to rent it out.

We've got a Nationwide mortgage on the BMR and it looks like they do a consent to let with 1% charge so our interest rate would be 3.5%.

Financially we can afford to plug the whole rent payment, less any costs back into overpaying the mortgage. Should we?

A lot of BTL guides seem against paying off the mortgage, I know you can tax deduct the interest portion of a mortgage payment, but over paying it seems like it would save a lot on interest even if there would be more income to pay tax on as the mortgage got smaller.

I will double check but I presume we'd get to keep our current terms which allow borrowing back overpayments if we did want the cash back too.

We'd both be in the basic rate tax band even with the rental income if that makes a difference.

Any help to get my head around the calculations would be much appreciated

Thanks

Typhoon2000

Yes if you have no plans to invest the spare money, and your savings account rate is worse than the 3.5% less the 20% tax saving, then overpay.

M0ney

Bear in mind that if you do overpay this will make it more difficult to buy a property of your own because it will take you longer to save for a deposit.

tiz

Thanks that's a good point. I do plan on buying somewhere and I'm saving regularly towards that already in ISAs. I think with current saving/interest rates I'm better overpaying and then taking money back out towards a deposit with the borrow back if I need it - I don't know if lender would prefer a bigger deposit or a lower mortgage/more income on the BTL.

I'm self employed so I'm hoping it will make me in a better position as the other property will count as extra income/self funding when I apply for a mortgage.

kingstreet

When applying for a residential mortgage, best you can expect is a lender treating your BTL as self-financing and ignoring it.

You'll only get to add the income for residential affordability purposes if the BTL is mortgage-free.

M0ney

tiz wrote: »

I think with current saving/interest rates I'm better overpaying and then taking money back out towards a deposit with the borrow back if I need it.

Be careful with overpaying and expecting that to work, you would need to remortgage to do that and you never know what your property will be valued at when you hope to pull funds from it, also, I've no experience of shared ownership but you and your sister would need to agree on the mortgage terms if you do remortgage.

tiz

M0ney wrote: »

Be careful with overpaying and expecting that to work, you would need to remortgage to do that

The current mortgage has a clause in allowing us to borrow back any overpayments - I will double check this isn't changed by the consent to let, but it should mean remortgaging wouldn't be necessary.

I'd be happy if they just ignored the BTL, that would still make quite a difference to an affordability calculation.