should i remortgage own home to pay off BTL mortgage

HongKongLady

Was just about to remortgage our own home in order to clear a BTL mortgage on our investment property, as I thought the tax relief on BTLs was being removed totally.
However, have just discovered (!!), that as a 20% tax rate payer, I will prob end up paying the same tax, as long as I have that BTL mortgage on it... The remortgage I was looking at was a much lower % rate and 10 year fixed, but obviously I'd then have to pay tax on all the BTL rental income as it would be mortgage free.
Here's my figures, anyone have any thoughts as to which is best in the long run...? Was hoping to pay off any mortgage a few years early anyway (hopefully in about 12 yrs so 5 yrs early).
Current value of home £600,000, remaining mortgage £9,000 on SVR of 4.74%.
Current value of BTL £320,000 remaining mortgage £171,000 on SVR of 5.24%.


Was planning on taking £200,000 mortgage on 10yr fixed rate @ 2.49% on 17yr term to cover both mortgages and £20k for home improvements in our home. We have £30k in easy access savings.
Both husband and I are in lower tax bracket (20%), and the full BTL income wouldn't take either of us into the 40% tax bracket.
The BTL has never had a void month since we bought it 4 yrs ago, despite 3 changes of tenant, just had to drop rent to £1100pcm for next tenant.
Currently pay £1115 to BTL mortgage and £477 to home mortgage, comfortable with that total amount... and the 10yr fix would reduce that combined monthly amount from £1592 to £1203 for the first 10 years, so we would be looking to overpay by about £400pm too if allowed.
So its a question of if the income from the BTL say £10,000, paying tax at full 20% with no mortgage interest relief is better than paying the higher BTL mortgage for the next 17yrs (or bit less) but being able to claim relief, due to being a 20% tax bracket couple.
Any thoughts gratefully received! Anything I've missed?

Thrugelmir

HongKongLady wrote: »

just had to drop rent to £1100pcm for next tenant.

Currently pay £1115 to BTL mortgage

Doesn't sound as if your £149,000 of equity earns much of a return.

At just over 4% gross yield. The BTL appears to offer poor value as an investment.

HongKongLady

that wasn't really the question! I'm happy with my investment. its gone from £248k to £330k ish in 3 years... and will go up more. Yes, it barely breaks even on the yield, but we bought it as a very long-term investment, and the capital increase is good. any thoughts on the question I asked?!

PField

You can get tax relief on borrowings up to the £248K purchase price of the BTL property. This borrowing doesn't have the be just the mortgage on the BTL. So you can still get contine to get the same tax relief if you borrowed on your main home to pay for your BTL as you would have if you took a BLT mortgage.

poppy10_2

HongKongLady wrote: »

its gone from £248k to £330k ish in 3 years... and will go up more.

Wow. Can I borrow your crystal ball?

dimbo61

As PField has pointed out you can still claim tax relief on the BTL mortgage debt as long as there is a clear path.
IE owed £171,000 on BTL property and paid off that debt with new residential mortgage of £200,000. You can offset the £171,000 only.
However if you are both lower rate tax payers you may struggle to get a £200,000 mortgage even with an excellent LTV.
Can you overpay 10% or even 20% a year on the fix rate mortgage each year ?

PS if you have never been higher rate tax payers the new tax changes do not effect you