Can i live in my BTL?

brad171080

Hi Folks,

My current mortgage deal with FD is up In Aug 08 and i'm confused as to the next steps to take because of my current and future circumstances.

I owe 68k, house worth 90k. I am going to let my property out in Dec 09 to a family member who returns from travelling. This date suits me to as i will be looking to move then as my partner will have finished her PGCE course and we can combine funds for a bigger house, nicer area etc

Here are my dilemas:

1. I want to get a fixed rate for 5 years so could i get a BTL mortgage in AUG 08 and still live in the house? i ask this because i want to avoid re mortgaging in Aug Only to have to re mortgage agin in DEC 09 for the BTL which would cost £££ for arrangement fees etc.

2. I have £3500 in an ISA but would i be better reducing my mortgage by this amount ( my mortgage allows 10% overpayments per yr, no charges) so mortgage would be for £64500 making me more appealing to lenders?

3. Should i just stick to what my FD rate will revert to which is 1.1% above BOE base rate and get the BTL in DEC 09?


Thanks to all who have took time to read this and i eagerly await your advice!!

Kind Regards

Brad

Gorgeous_George

Depends on the rates. In my experience BTL rates are not significantly more expensive than normal mortgage rates and I'd go for a BTL mortgage straightaway. You can still live in it yourself and you have the flexibility to let it without requiring permission from your lender.

Borrow as much as possible and invest any excess in ISAs etc. An interest only mortgage is easier when it comes to tax returns and ensures that the amount offset against income tax remains at a high. Remember to have the house valued by three agents before you let as this will be important for capital gains tax (CGT) reasons when you come to sell.

I'd recommend any mortgage that is tied to BofE base rate but a decent 10-year fix may also be an option.

GG

grogdog

brad the mortgage company will never know if you let the property out so i wouldnt bother telling them, also alot of companies dont like you letting property to family members so why bother with the hassle.

grogdog

sorry i meant to mention that if you are letting property out the normal house insurance is no use , you will need a landlords policy. should cost much the same

Dan_Collins_2

You have to watch the regulation also, if they are a family member it may be classed as a regulated let.

p1an0player

Gorgeous_George wrote: »

capital gains tax (CGT) reasons when you come to sell.

seems optimistic in the current climate

static999

Gorgeous_George wrote: »

Remember to have the house valued by three agents before you let as this will be important for capital gains tax (CGT) reasons when you come to sell.
GG

What are the reasons to have the house valued by 3 agents before you let? Would it be a proof that the equity (if any) up to the point before letting is CGT free & after that would be taxable?

Gorgeous_George

static999 wrote: »

What are the reasons to have the house valued by 3 agents before you let? Would it be a proof that the equity (if any) up to the point before letting is CGT free & after that would be taxable?

Yes and any losses can be off-set against any other gains realised in that tax year.

GG

silvercar

The CGT liability would be calculated as a share of the total gain rather than using a valuation at an interrim point during ownership.

The only point in valuing at the point you start letting is to establish the maximum amount of mortgage interest allowed as an expense of letting.

Gorgeous_George

But surely, if the house starts as a straightforward residential property and the letting business starts at a later date, CGT is payable on the difference between the value when sold and the value when the property became a BTL.

silvercar will be right I'm sure.

GG

silvercar

simplified example:

house value 100k bought in 2001, sold in 2010 for 300k. Assume it was let from 2006 to sale in 2010.

gain in value = 200k, buying and selling costs = 5k reducing gain to 195k.

property exempt from CGT for the time it was home and the last 3 years of ownership so exempt for 5 year + 3 yrs= 8 years. so two-tenths of the gain is chargeable to CGT ie 39k.

CGT allowance of say 10k by 2010 reduces gain to 29k on which you pay flat rate 18% CGT. tax= £5,220.

(I have ignored lettings relief which would reduce tax further.)

The purpose of the example was to show that the value at the point the property was first let is not relevent to CGT. But, if the property was valued at £150k when first let out then the amount of mortgage interest allowable as an expense to put against rental income would be restricted to the interest on 150k even if later on the mortgage was increased to say 250k.