Repayment BTL mortgage

paul090971

My current buy to let mortgage is just an interest only mortgage. Can you have a buy to let mortgage thats a repayment mortgage?

dunstonh

You can but you will pay more in tax if you do as you can only claim the interest element as a business expense. As you reduce the balance on a repayment mortgage you pay less interest and therefore you increase your taxable income.

Most common method for repaying the mortgage is to sell the property.

Hopefully, after 20 or so years of paying someone else to live in your property as your rental income wasnt enough to cover the mortgage, you will get lucky once you have paid off the mortgage and your capital gains tax bill and end up with a surplus.

paul090971

Reason I was asking was due to interest rates going up, I am now running at a £33 loss per month and have to transfer this amount from my own cash to break even. I want it though for the long term and hope to make a good bit of money on it. It would be great if I could get the £82k paid off so that I own the place outright by the time I am 65. Also I have 30k sat in my business account, any tips what I can do with that? thanks

dunstonh

I meant it as a joke but as it was actually the case. You are paying someone to live in your house. At least you dont have to pay income tax on it.

If you switch to repayment you will be paying far more. Problem is that by increasing the payments you are not making any money on this extra amount you are ploughing in each month (or any other capital you put into it). So, whilst you save a small amount on one side (reducing your mortgage payment) you lose more on the other side (by not having the money invested).

Ideally, you want to be shot of the property by the time you are 65 as rental income is considered taxable income and if you earn over £20,900 p.a. over 65, your age allowance is reduced. The extra tax would be the equivalent of around 2-3 months rent which in real terms brings your yield down even more.

If you are running lots of properties and are well throught the £20,900 mark then its not really an issue as you cannot avoid it. However, if you are running just one or two, then the extra tax and low rental yields dont make it a very good option.