Equity Release

[poocherama]

Hi PH mortgage experts,

I own an unmortgaged rental property in central London. I've an opportunity to invest in a business, circa £50k. Would I be able to release this equity from the property and if so would it be classed as a BTL mortgage with the subsequent interest offset agains't my tax liability?

Also would I be able to structure it as Interest only for two years with the aim of repaying the principle at the end of year two? Additionally as the business is pretty early stage am I going to have to show the bank business plans, cash flow forecasts etc? In theory the rent from the property could clear the principle in two years but i'm keen to keep taking an income in the meantime.

Many thanks in advance,

P

[Sarnie]

poocherama said:

Hi PH mortgage experts,

I own an unmortgaged rental property in central London. I've an opportunity to invest in a business, circa £50k. Would I be able to release this equity from the property and if so would it be classed as a BTL mortgage with the subsequent interest offset agains't my tax liability?

Also would I be able to structure it as Interest only for two years with the aim of repaying the principle at the end of year two? Additionally as the business is pretty early stage am I going to have to show the bank business plans, cash flow forecasts etc? In theory the rent from the property could clear the principle in two years but i'm keen to keep taking an income in the meantime.

Many thanks in advance,

P

Yes you can.

There would be no need for business plans, that's not an underwriters concern. They would want to ensure that the projected borrowing, and the subsequent monthly payment, can be serviced satisfactorily by the rent.

You will run into issues with some lenders if you don't currently own a residential property or if your salary is less than £25k, as these are key pieces of BTL lenders criteria currently.

You can have it on IO, no problem at all.

[poocherama]

Sarnie said:

Yes you can.

There would be no need for business plans, that's not an underwriters concern. They would want to ensure that the projected borrowing, and the subsequent monthly payment, can be serviced satisfactorily by the rent.

You will run into issues with some lenders if you don't currently own a residential property or if your salary is less than £25k, as these are key pieces of BTL lenders criteria currently.

You can have it on IO, no problem at all.

Thanks Sarnie, very helpful. Borrowing costs/repayments would have a good coverage ratio and the current BTL lending criteria you mention are also covered.

P

[Sarnie]

poocherama said:

Thanks Sarnie, very helpful. Borrowing costs/repayments would have a good coverage ratio and the current BTL lending criteria you mention are also covered.

P

Sounds good, feel free to drop me a PM if you want some indicative figures

[poocherama]

Sarnie said:

Sounds good, feel free to drop me a PM if you want some indicative figures

Thanks, will keep you posted!

[Sir Bagalot]

Sarnie said:

Yes you can.

That's not my understanding.

Doesn't it depend on the value of the property when it first entered the letting arena? For example I buy a £100K house for letting purposes with a £80K mortgage. I can offset the interest on the mortgage against my tax liability.

Over time the house increases in value to £200K, I release some equity for other projects and now have a mortgage of £160K. I'm under the belief that as the house was worth £100K when it entered the letting arena that this is the maximum amount of loan interest that I could offset against tax. So interest on £100K is allowable whilst the interest on the other £60K isn't.