Buy to let – GET OUT!

We’re remortgaging our existing house to rent out with a buy to let.
We’re using the capital to buy a new house that we’ll be moving into.
Seems simple enough.

So we started the exchange process for our existing house mortgage. The lenders (Virgin) have said we must leave the house once we’ve completed that mortgage because it’s a buy to let.

We didn’t intend to do this because we were going to stay here for a while (a few weeks) while we did some work to the new house. The kitchen needs stripping out and some floors need fitting so we though it best to do that first before we move in.

Is this usual then? It’s made me quite cross as our adviser didn’t tell us this despite us explaining to him what our plans were.

They aren’t going to come round and check on you, are they?

Can’t you rent it to yourself?

Rent it to your son for nominal fee, who lets you live with him and pay his bills 😉

Thanks for the heads up. We might be going down this route in the next couple of weeks. In our case, we’ve no intention of actually letting the existing property it’s just that we’ve been assured that this is cheaper and easier than trying to get a bridging loan.

Doubt if any one from the call centre will come and check. Get the poll tax and insurance in someone else’s name for a few weeks maybe. Have a ‘tenant’ for a month.

That’s the thing. We still pay the buildings insurance. Half our stuff will have been moved to the new house. (My rule will be, no-one goes to the new house without taking stuff with them 😉 ), they’ll never actually know but the solicitor has gone all arsey on us.

So for info for those that are interested.
The lenders have said we can stay in the property for up to 8 weeks following completion. They want a signed letter to confirm this.

😆

We had the same stipulation when we re-mortgaged a flat prior to buying a house earlier this year.

Wasn’t an issue for us though as everything completed on the same day and we were happy to move out the flat asap.

We’re remortgaging our existing house to rent out with a buy to let.
We’re using the capital to buy a new house that we’ll be moving into

Why not borrow all of the money on the house that you’ll be living in??
It would be at a better rate than a buy-to-let mortgage..

Get the poll tax and insurance in someone else’s name

Poll tax? I doubt many on here will know about that.

Why not borrow all of the money on the house that you’ll be living in??
It would be at a better rate than a buy-to-let mortgage..

Because then we’d need someone to give us a 100% mortgage on the new house. This way we release the equity in our existing house until we want to sell it and then when we do we clear the buy to let and use the remainder to soften the new mortgage. The buy to let is interest only and as a result is so low we’d barely notice it.

In fairness they have made the loan on the basis that tennents will be paying the mortgage, ie they’ve looked at rental cash flow vs the mortgage payments rather than making an assessment of your ability to pay.

Just take your time moving out, youve probably got loads of stuff and its gonna take aaaaaaaagggess, months even.

Why not borrow all of the money on the house that you’ll be living in??
It would be at a better rate than a buy-to-let mortgage..

It’s mafs innit…. i.e. it’s potentially more financially savvy to have a higher loan, ergo a higher interest payment on a rental property, which can be offset against tax implications…

In fairness they have made the loan on the basis that tennents will be paying the mortgage, ie they’ve looked at rental cash flow vs the mortgage payments rather than making an assessment of your ability to pay.

Not always the case – sometimes in situations like this, the mortgage company will look at your ability to pay both mortgages – in effect they sometimes ignore the fact that one is rented out.
I.e. if the max a mortgage company will lend you is £300k, and you have £200k on a BTL house, they may only lend another £100 to you for you ‘own’ home…

DrP

offset against tax implications…

You can still offset the loan against tax even if the mortgage isn’t on the rental property.

Having said that I can see why samuri isn’t chasing a 100% mortgage

You can still offset the loan against tax even if the mortgage isn’t on the rental property.

How would you explain that to the tax man? (genuine question).
Surely the argument would be that the loan against your house has nothing to to with the rental property. It’s not like you could include your own house in any sort of portfolio of rental properties, no?

DrP

if the max a mortgage company will lend you is £300k, and you have £200k on a BTL house, they may only lend another £100 to you for you ‘own’ home..

Tel me more of this maffs stuff

Prays your prescriptions have a greater attention to detail 😉

It’s mafs innit…. i.e. it’s potentially more financially savvy to have a higher loan, ergo a higher interest payment on a rental property, which can be offset against tax implications…

genuine question here, DrP. (I might learn something).

Why wouldn’t you want the lowest interest payments either way? Tax is only payable on profit made on the rent so why would you want to ‘artificially’ reduce that profit so you pay less or no tax but also have none or less profit?

Well, if you need to borrow 50k from ‘somewhere’, you want to make borrowing that as painless as possible.
If you borrow it on your ‘own’ mortgage at a really really low rate, then that may be the best option.
But, if you can ‘add’ that 50k to a BTL property’s mortgage, then you may get a less favourable interest rate on that particular mortgage, but if you ‘artificially lower the profit by increasing the interest payments’ on that property, then you lower the tax you have to pay.

Essentially, you need to borrow 50k from somewhere. If you were having to pay ‘x’ interest on you own mortgage, but by adding that debt to a BTL property you pay ‘y’ interest, but the overall cost to you is a reduction in tax burden that in the end costs you ‘less than X’ then that’s the best option.

It may not be the best option in all cases, but it may be….

DrP

Essentially, you need to borrow 50k from somewhere. If you were having to pay ‘x’ interest on you own mortgage, but by adding that debt to a BTL property you pay ‘y’ interest, but the overall cost to you is a reduction in tax burden that in the end costs you ‘less than X’ then that’s the best option.

Yes this is what we did.

Or look at it this way….(made up figures)
If BOTH houses had identical interest rates, if you borrowed 50k it cost you an extra £150 per month….
On YOUR house, that would cost you £150
On the RENTAL house, it would reduce your profit by £150, which would result in about 60 less tax… So really it costs you only £90 per month….

Of course, there comes a point as the interest rates differ that it’ll swing one way or the other….

DrP

[mother_hat_on]Be very very careful. Whilst the chances of getting caught are very slim you are in effect committing fraud to obtain what I imagine to be a nice 5 or 6 figure sum (you are obtaining money through deception after all).

The mortgage deed which sets out the conditions of the mortgage, including the fact that it is a buy to let mortgage, is a legal document of which you are very likely to be in breach of.

Mortgage fraud is a criminal offence and people have been charged with it.

If (and it is a big if) you are found out one of the better outcomes would be that the mortgage company declares the mortgage void and wants all its money back immediately. Worst case – you’re in front of a judge.

Not saying do or don’t do it and I appreciate your reasons for wanting to take this route but just be aware of the worst case scenario *if* the mortgage co finds out.[mother_hat_off]

Cheers

Danny B

Clicked on this thinking the thread title was offering some sensible financial advice.

Is BTL a good idea again now?

How would you explain that to the tax man? (genuine question).

You’re borrowing money to fund your business (i.e. renting out a property), the collateral for the loan happens to be your house rather than the rental property.

When we bought our house I remortgaged my flat to release equity to get a deposit on the house. Once we bought the house and moved I arranged with the mortgage company permission to rent my flat. I cost me £500 for a letter from them to give me premission. They didn’t change my mortgage (or they’d risk losing my business) to a BTL, so I essentially have a “normal” mortgage at a reasonable rate rather than the higher BTL rate. It is however a repayment mortgage not interest only. The rent still easily covers the full payment. I just need to ensure I’m saving enough to cover the tax bill (mostly covered by the excess rent anyway).

We’re remortgaging our existing house to rent out with a buy to let.
We’re using the capital to buy a new house that we’ll be moving into.
Seems simple enough.

Or you could just not be greedy, sell your old place and free up a house for a FTB young family struggling to get on the property ladder due to BTL parasites blocking up the housing market? Just a thought and probably far less hastle in the long run?

Oooh get you… 🙄

Just because some people wish to plan for their financial future, one should not jump to the conclusion they are a parasite…

DrP

Right – bbeen looking through some of my BTL books/info, and came across this…

Interest paid on a mortgage taken out to release capital in a rented property can still be deducted from the rental profit received from that property should the capital raised then be used to purchase another property or even to reduce the capital outstanding on the main residence. The actual reason for the mortgage is not important.
The key criterion is that the total amount of capital released must not exceed the market value of the property when originally brought into the letting business. If the property had originally been bought for letting then this amount would be the purchase price; otherwise use the market value at the date of transfer.
Equity Release
Anne wishes to raise £150,000 via a mortgage on two BTL properties that were purchased with cash some years ago. The purchase price of the properties was £125,000 and they were let out immediately on acquisition. The mortgage monies will be used as capital to purchase a holiday cottage for personal use.
The maximum amount of interest allowable will be the proportion relating to the amount paid for the properties originally, i.e. £125,000.
There is no need to include the cottage in the portfolio for tax relief to be allowed; it can be kept for private use but interest on £25,000 will be disallowed.

There you go!

DrP

Or you could just not be greedy, sell your old place and free up a house for a FTB young family struggling to get on the property ladder due to BTL parasites blocking up the housing market? Just a thought and probably far less hastle in the long run?

LOL! Sorry to burst your extremely naive view of me (and many others in the same situation) as a money grabbing parasite but if you can find a family who will buy our house could you put them in touch with me please?

You might have missed quite a lot of what’s going on the world but the housing market is completely stagnant. There’s been houses on our estate up for sale for over two years. No one is buying. I’d love to sell, get the money in my hand and then forget about it but it’s not an option that’s going to happen.
Trust me, as soon as we can sell we will be doing, I’ve absolutely no desire to maintain two houses but if we want to move (and we’ve been in the same house for 18 years so I expect it’s not unreasonable for us to want to do so), this is the only option that will work.

Of course, we could just sit in the house for another couple of years waiting for the market to pick up but if everyone did that, even less houses would get bought which sort of blows your plan out the water.

Rent it to your son for nominal fee, who lets you live with him and pay his bills

Definitely don’t do this. This will almost certainly be a breach of your mortgage terms.

Allowing a family member to reside there would require a “Regulated Buy to Let”, which very few mortgage providers offer.

I tried to buy a house for my mum a while back and was told by almost all mortgage providers that they wouldn’t entertain a regulated buy to let.

We did it last November and didn’t move to the new house till Feb. Nobody told us we couldn’t stay.

“You might have missed quite a lot of what’s going on the world place where samuri lives but the housing market is completely stagnant.”

I do apologise. The world apart from India and New Zealand then. It would appear that the rest of the world has a stagnant housing market.

http://www.globalpropertyguide.com/house-prices-indices/House-price-changes-year-to-end-Q4-2012

yep because there are definantly no regional variances within countries.

houses are still selling mentally where i live , they litterally cannot keep up with demand for new houses….

a friend went to look at the show home at the new development in dyce…. the show home just been finished and she was told that ALL the houses on the estate had been sold off plan while the show home was being built ! – its not even a nice area !

mean while round the corner from there- they are building a block of flats between the railway and the airport – right where everyone wants to live and those are selling quick too.

http://news.bbc.co.uk/1/shared/spl/hi/in_depth/uk_house_prices/html/qa.stm

I am in the process of moving into a new house and am keeping the current house as well to rent out. We have been advised to take out a BTL mortgage on the rental property as it is not classed as a debt due to the fact that you are receiving a monthly payment that covers the cost of the mortgage.

The interest is slightly higher on a BTL mortgage but is ultimately a better way of doing it (or so i’ve been told). I might have to ask some additonal questions following this thread!!!

houses are still selling mentally where i live , they litterally cannot keep up with demand for new houses….

Yes. New houses. Because the Govt is subsidising the building industry with a 20% free loan instead of making them save for a deposit, new builds sell like the clappers.

Stuff that’s already built is hanging around for years.