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.

[Sir Bagalot]

To get the best rates then yes 65% is the max LTV, but at 75% you'll still get decent rates.

Just remember that you won't be able to offset the entire mortgage against tax, but only the amount equal to the value of the flat when it first entered the rental market. So if the flat was worth £85K when it was first rented out but is now worth £200K and you take a £150K mortgage then you can only offset the interest on £85K against tax.

If it were me I'd try and get a BTL mortgage and use that as a deposit for your new home. Just remember the extra 3% stamp duty...

[bayleaf]

Sir Bagalot said:

Just remember that you won't be able to offset the entire mortgage against tax, but only the amount equal to the value of the flat when it first entered the rental market. So if the flat was worth £85K when it was first rented out but is now worth £200K and you take a £150K mortgage then you can only offset the interest on £85K against tax.

..

This isn't true at all! I think you're getting confused with CGT and even then, you're not quite right.

[mike74]

Why don't you try advertising the flat at a realistic market value that would generate interest?

[Sarnie]

sawman said:

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.

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...........

[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

[Sarnie]

sawman said:

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

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

[sawman]

Sarnie said:

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

Thanks for the tip

[mike74]

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.

[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.

[bayleaf]

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.

I can't believe he treated you like that Mike really. Outrageous.

[mike74]

bayleaf said:

I can't believe he treated you like that Mike really. Outrageous.

Absoloutely it's outrageous, I can barely handle the rejection!

Just a little hint for the o.p. who's first preference was obviously to sell and not btl... regardless of where you are anywhere in the uk, the market is only "stagnant" for vendors with greedy, deluded, unrealistic asking prices.

Best of luck with you btl plans, you'll need it.

[Gregmitchell]

mike74 said:

bayleaf said:

I can't believe he treated you like that Mike really. Outrageous.

Absoloutely it's outrageous, I can barely handle the rejection!

Just a little hint for the o.p. who's first preference was obviously to sell and not btl... regardless of where you are anywhere in the uk, the market is only "stagnant" for vendors with greedy, deluded, unrealistic asking prices.

Best of luck with you btl plans, you'll need it.

You don't know where his property is or his ROI....

[Sharted]

mike74 said:

Absoloutely it's outrageous, I can barely handle the rejection!

Just a little hint for the o.p. who's first preference was obviously to sell and not btl... regardless of where you are anywhere in the uk, the market is only "stagnant" for vendors with greedy, deluded, unrealistic asking prices.

Best of luck with you btl plans, you'll need it.

Sniff, sniff...

Ah HPC forum member, a distinct aroma.

[Sir Bagalot]

bayleaf said:

Sir Bagalot said:

Just remember that you won't be able to offset the entire mortgage against tax, but only the amount equal to the value of the flat when it first entered the rental market. So if the flat was worth £85K when it was first rented out but is now worth £200K and you take a £150K mortgage then you can only offset the interest on £85K against tax.

..

This isn't true at all! I think you're getting confused with CGT and even then, you're not quite right.

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.

[cat with a hat]

mike74 said:

Why don't you try advertising the flat at a realistic market value that would generate interest?

this is probably the real reason.

[bayleaf]

Sir Bagalot said:

bayleaf said:

Sir Bagalot said:

Just remember that you won't be able to offset the entire mortgage against tax, but only the amount equal to the value of the flat when it first entered the rental market. So if the flat was worth £85K when it was first rented out but is now worth £200K and you take a £150K mortgage then you can only offset the interest on £85K against tax.

..

This isn't true at all! I think you're getting confused with CGT and even then, you're not quite right.

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.

i still don't think this is true! Do you have anyway of backing it up?

[mike74]

Sharted said:

Sniff, sniff...

Ah HPC forum member, a distinct aroma.

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.

[GT03ROB]

bayleaf said:

Sir Bagalot said:

bayleaf said:

Sir Bagalot said:

Just remember that you won't be able to offset the entire mortgage against tax, but only the amount equal to the value of the flat when it first entered the rental market. So if the flat was worth £85K when it was first rented out but is now worth £200K and you take a £150K mortgage then you can only offset the interest on £85K against tax.

..

This isn't true at all! I think you're getting confused with CGT and even then, you're not quite right.

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.

i still don't think this is true! Do you have anyway of backing it up?

On first reading Sir Bagalot I though he was talking a load of bks too.... however reading his explanation it sounds correct in so far as I thought you could only offset the interest where the purpose of the loan is to purchase/own a BTL. If you already own the BTL then the purpose of a loan that exceeds the purchase price of the BTL (unless reinvested in another BTL) cannot be to fund a BTL.

[uknick]

bayleaf said:

i still don't think this is true! Do you have anyway of backing it up?

here you go;

https://www.gov.uk/guidance/income-tax-when-you-re...

The relevant paragraph;

"Increasing your mortgage

The rules are slightly different and more complex where you have remortgaged against the value of your rental property. If you increase your mortgage loan on your buy-to-let property you can also treat interest on the additional loan as a revenue expense but only up to the capital value of the property when it was brought into your letting business. Interest on any additional borrowing above the capital value of the property when it was brought into your letting business is not tax deductible."