Releasing equity/ purchasing buy to let

user1977

Tonearoma said:

Any advice on how to buy a 2nd home to rent (this will hopefully form part of my almost non existent pension)

If you don't have much of a pension then why are you going for a BTL (given that residential properties can't form part of a "proper" pension fund in terms of getting the tax benefits)?

theartfullodger

What makes you think you will make money (income and/or capital gain) out of BTL??  If it turned out not to make either would you survive??

Do you have the financial and emotional reserves to cope with the tenant from hell (or agent..) who doesn't pay you rent for say 7 months whilst you pay for mortgage, legal fees and repairs: Repairs?? Oh yes unless you want judge t decide you are harassing tenant ,....

Most years I make money from BTL - but not every year....

Tonearoma

Thanks everyone. Certainly an eye opener and the things to consider is ramping up. Time to get a bit of perspective... thanks for all the input 

Olinda99

I think this is true but obviously check...

if you buy a property to let out and you get a buy to let mortgage then you are allowed to offset mortgage interest against rental income in some way maybe limited to 20% or something 

if however you get equity release from your main residence then your effectively have a chunk of cash with which you are buying your buy to let and thus you are not allowed to offset the interest rolling up on the equity release loan against rental income

kingstreet

Olinda99 said:

I think this is true but obviously check...

if you buy a property to let out and you get a buy to let mortgage then you are allowed to offset mortgage interest against rental income in some way maybe limited to 20% or something 

if however you get equity release from your main residence then your effectively have a chunk of cash with which you are buying your buy to let and thus you are not allowed to offset the interest rolling up on the equity release loan against rental income

The mortgage interest credit is given on a loan upto the value of the property at the time it started to be let regardless of what the loan is secured on. If the OP secures 40% on his residence and 60% on the let, he can still claim the tax credit on 20% of the total interest incurred in running the letting business.

kingstreet

OP from a practical point of view, this can probably be done. You raise a deposit and SDLT, fees etc on your main residence and raise a BTL mortgage on the property to be let. You'll have to fine-tune each element to ensure lowest overall rates from lower LTVs etc and affordability requirements. If going the holiday let route, the rental income will be estimated using a 30 week season by averaging high, medium and low season rents for ten weeks each. Otherwise, the lender's surveyor will establish the potential based on a standard AST.

A decent mortgage broker can plan this out and produce illustrations to see how it stacks up. You'll also need tax advice from a specialist.

Tonearoma

theartfullodger said:

What makes you think you will make money (income and/or capital gain) out of BTpL??  If it turned out not to make either would you survive??

Pretty sure at no point I said that I 'would' make money, but thanks for your input nonetheless 

Bookworm105

Olinda99 said:

I think this is true but obviously check...

if you buy a property to let out and you get a buy to let mortgage then you are allowed to offset mortgage interest against rental income in some way maybe limited to 20% or something 

if however you get equity release from your main residence then your effectively have a chunk of cash with which you are buying your buy to let and thus you are not allowed to offset the interest rolling up on the equity release loan against rental income

Using money from the main home to fund a business is allowable as Kingstreet says. The private home "equity release" loan is being used for a business purpose
PIM2054 - Deductions: interest: restriction for income tax purposes from 2017/18: introduction - HMRC internal manual - GOV.UK (www.gov.uk)

But also in the context of this thread, OP's intention is partly to have use of the property as a private holiday home, so the loan interest may need to be capped, as there is a non business element underpinning the property purchase. See "Interest payable on property only partly used for rental business"

PIM2052 - Deductions: interest: overview - HMRC internal manual - GOV.UK (www.gov.uk)