interest only buy to let mortgage

[sawman]

I have had a flat on the market for a while, it doesn't seem to be generating any sales interest, although its a nice place and has rented well for the 13 years we have had it.

I would really like to buy a main residence this year (we have been in rented, since returning from overseas a few years ago) but in order to get a reasonable place, I really need to liberate the capital tied up in the flat.

As an alternative to selling, I guess we could take out a BTL mortgage as we currently have no mortgage on it. Looking at one of the online comparison sites, it looks like I could take 65% out of the flat on an interest only BTL deal, to use as a large part of a deposit on a main residential property.

I know for a residential mortgage, lenders are keen to see a plan is in place to settle the equity at the end of the mortgage, is this the same for BTL?. Also is it likely that lenders would allow me to take out an interest only BTL and then a repayment mortgage for the subsequent main residence purchase.

[sawman]

Sarnie said:

Interest Only is freely available for BTL's as they are unregulated where Residential mortgages are regulated and therefore Interest Only mortgages will require credible repayment strategies.

However, most lenders will require you to be an owner occupier at the point of completion so will insist on a simultaneous completion of both transactions, they won't allow you draw down the funds and bank it until you find a property to buy.......

And yes, don't forget the additional 3% SDLT...........

Cheers, so potentially do-able i guess having the same lender for both components might simplyfy things, i had of course forgotten about the extra stamp duty, it might be worth slashing the flat price a little further, although i suspect the flat issue is largely oversupply, theres well over 100 properties with a similar spec to ours within a mile! Prices still havent recovered to pre crash yet

[sawman]

Sarnie said:

No, the same lender for both actually makes it more complicated!

Thanks for the tip

[sawman]

mike74 said:

You don't seem to have noticed (or chosen to ignore) my previous question re. why aren't you advertising the property at a sensible and realistic market value that would generate interest from buyers?

Seems like the simplest solution to your situation.

Thanks for the input Mike, my post was about btl mortgage
I have considered your angle, the market where our flat is seems pretty stagnant.

[sawman]

mike74 said:

Not entirely sure I could be described as a "crashist" given that I'm mortgage free and my property is worth more than 3x what I paid for it in 2001... I am someone who is intelligent enough to recognise that that level of insane HPI is of no benefit what so ever to me personally as a single property owner occupier and its certainly of no benefit to the wider economy or society as a whole.

I'm also someone who recognises what huge damage btl has done to the property market and I'm relieved that the greedy simpletons who dived into it are now justifiably being targeted by the Chancellor and the BoE.

Finally I'm someone who is sick of the deluded morons and kiteflyers who put their property on the market for ridiculous asking prices and don't have the intelligence to figure out why it won't sell.

sounds like you need to relax more, Mike;)

you are using very broad brush strokes here, and know nothing of my situation, or IQ

[sawman]

Sir Bagalot said:

Nope, I'm not getting confused, but this time I'll give you an exact answer.

The maximum interest you can offset is on a loan equivalent to the value of the property when it first entered the rental market. You could also offset the interest if capital improvements were made.

So in the above example if you starting renting it out when it was worth £85K, now worth £200K and you remortgage for £150K then the most you can offset if £85K.

If you however had spent £10K on capital improvements then this too can be offset but if you used that other money to buy your PRP then it can't be offset.

If however you put that additional money into a deposit for another BTL then yes, it can be offset against tax.

Things of course would be different if you rented it out, then moved back in (long enough to satisfy HMRC) and then rented it out again.

We wil be ok then, our flat is currently advertised for 20% less than its value in 2003!