Re-mortgaging the house to raise capital... any thoughts/expertise/pitfalls

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A friend is thinking of remortgage his primary home to fund a new buy-to-let home. Anyone gone down this route before? He's got a finger in a few pies - has a day job, side businesses etc. So cash flow may not be his issue, but needs capital.

The only thing he is not good at ... is golf. Shoots around 100, but somehow always manages to find his ball in the deepest of roughs (though i have my doubts)
 
We did this about 6 years ago
Have 4 flats bought off plan.

We spread ourselves too thinly,
We would have been better off with 2 with smaller btl mortgages
Also I would have bought nearer home so I can be hands on for managing , otherwise you are paying £80 pm + for a letting agent to collect the money each month.

Flats have service charges and maintenance funds and ground rent
Buy a house if you can.

Repayment btl mortgage unless he is buying outright, then the income is a useful pension source and you have the capital value
It's a long term game, if he is thinking short term, he might be disappointed
 
PhilTheFragger said:
We did this about 6 years ago
Have 4 flats bought off plan.

We spread ourselves too thinly,
We would have been better off with 2 with smaller btl mortgages
Also I would have bought nearer home so I can be hands on for managing , otherwise you are paying £80 pm + for a letting agent to collect the money each month.

Flats have service charges and maintenance funds and ground rent
Buy a house if you can.

Repayment btl mortgage unless he is buying outright, then the income is a useful pension source and you have the capital value
It's a long term game, if he is thinking short term, he might be disappointed
Click to expand...

Frags the man...

From what I understand he is going the other way.. he is looking to upsize as his 2nd one needs a room too. He has some equity in his current place. So thinking of equity release from his current place to fund his own (new) home and letting his current one. The rents around his area is bigger than his mortgage. Does this work

Also another question: If you have a BTL mortgage, can u offset the full mortgage payment against the rent or only the interest or capital bits?
 
Maninblack4612 said:
Only the interest. (Retired Chartered Accountant, one of the few areas where I know what I'm talking about)
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Tnx... that seems to be in line with what he was saying too.

... so if the BTL mortgage is interest only (assuming that there is an interest only BTL mortgage), does that mean the full thing can be offset?
 
With regard to Tax relief on the Interest payments, I have a BTL and when we took advise we were advised that if borrowed on our home to raise funds we could not get the tax relief because the Tax relief can onlt be applied on the mortgage for the BTL property, not your own property, which is the reason we did not go the borrow against the equity on your home route
 
apj0524 said:
With regard to Tax relief on the Interest payments, I have a BTL and when we took advise we were advised that if borrowed on our home to raise funds we could not get the tax relief because the Tax relief can onlt be applied on the mortgage for the BTL property, not your own property, which is the reason we did not go the borrow against the equity on your home route
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Don't know who advised you but I'm certain this is not true. If you take a further advance on your mortgage, possibly, but if you simply use the home equity to secure a btl mortgage by way of a second charge the interest will be allowable for sure.
 
Maninblack4612 said:
Don't know who advised you but I'm certain this is not true. If you take a further advance on your mortgage, possibly, but if you simply use the home equity to secure a btl mortgage by way of a second charge the interest will be allowable for sure.
Click to expand...

Thanks for the reply that's interesting, so if we take mortgage on our family home to release some cash to buy another btl, we can get tax relief of these against the income from the btl rental, I thought the mortgage had to on the BTL property?
 
apj0524 said:
Thanks for the reply that's interesting, so if we take mortgage on our family home to release some cash to buy another btl, we can get tax relief of these against the income from the btl rental, I thought the mortgage had to on the BTL property?
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That's not the same as using your home to secure a btl loan. You would normally offer the investment property as security & make up any security shortfall by giving a second charge behind your mortgage as additions security. Not sure about raising funds to make up a deposit on the btl property. Best to consult a practising, non retired accountant.
 
I thought tax relief went out of the window years ago
You need to account for your property income and expenditure separately from your work/ domestic
And you can offset mortgage interest against income,

Also repairs, ground rent, letting agents fees etc etc :)
 
You can only get tax relief on a mortgage for the let property dependent on circumstances

You could borrow money on your house and then transfer the mortgage to the let property, this will cost in solicitors and mortgage fees etc, however these costs can be offset against tax if you are a higher than average earner

You might be able to get a interest only mortgage - this may be offsetable against tax but I'm not 100 % sure on this as have no experience

Also you can claim tax relief on any expenses

Get hold of a self assessment form the details are listed

All is dependent on whose name the mortgage is in also.

If the let property is local to you wouldn't bother with estate agents - will mean a little work though and you will need a tenancy agreement

HTH
 
Had an interesting morning... my friend was going to meet the Bank, so tagged along. I dont think the lovely lady who had a bit of training, was ready to tackle two golfers who would duck whenever the computer threw out a number starting with a '4'. The bank was not very helpful, but I did a bit of googling on the interweb and found some interesting things. What we were looking for was not BTL but LTB i.e. Let-to-buy Read on..

Background (numbers are made up):
He has a 3 Bed (say Property A) which is now valued at 400K. He has 200K mortgage left on the clock (so 50% LTV). The rental value in the area is about £1300+. What he is looking to do is release some equity from PropA and buy a 4-Bed (say Property B). He then wants to let out PropA.

We managed to completely confuse the mortgage lady with options and she had to keep going back to her manager to check. So acc 2 her the options were

1) Sell PropA... Make 200K... put it as deposit towards your new home. Assuming he can get a mortgage of 500K, he therefore can buy a PropB for 700K.... Simples

2) Get a homeowners loan - the max they wud give was 80K. So take that and you can get PropB for 580K (which wont get much in our area). But then if he wants to let PropA, he must get a 'consent to let' and he will have change his current residential loan to a BTL loan. However, she was not sure if the Bank would let him get a Homeowner loan if he was going to get a BTL loan. So he can take a loan but he canot move!!

I am sure she is missing a point. He is a top end premier customer, so interesting to see that they could not make it work. (on the other hand) I am happy Banks are more tighter in their lending regime these days.

Anyways, I came back and looked up 'consent to let' and after sometime I stumbled onto 'Let-to-Buy' which is precisely what he is looking to do. Rather than me trying to explain, here is website that I found really useful: http://www.charcol.co.uk/knowledge-resources/ask-the-mortgage-experts/let-to-buy/ They will be surely getting an email soon.

Anyone down this route before???

PS: We stopped by an estate agent on our way back.. His (interesting) idea was to sell PropA and get the 200K. Then use 150k towards PropB and when the market cools buy a 1 bed flat for 200K via BTL using 50K as deposit.. you can get about £500 as rent!!


PPS: WARNING: THANKS TO EVERYONE WHO HAS CONTRIBUTED SO FAR, NO ONE SHOULD READ ANYTHING ON THIS THREAD AS ADVICE AND SHOULD SEEK INDEPENDENT (and non-retired) ADVICE.
 
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PhilTheFragger said:
I thought tax relief went out of the window years ago
You need to account for your property income and expenditure separately from your work/ domestic
And you can offset mortgage interest against income,
Also repairs, ground rent, letting agents fees etc etc :)
Click to expand...

It was tax relief on your own home loan that stopped years ago. Interest on business loans is still tax deductible. (I'm a retired business banker as well as an accountant)
 
The banks now do have very tight lending criteria especially when it comes to buy to let or let to buy (no real distinction between the two in practical terms). So only offering a homeowner loan is not inconsistent with how they approach this. I tried to see how flexible they might be with a property I let but they were very unwilling to offer any equity release or change it to interest only. You should speak to a specialist btl mortgage lender or speak to an independent broker, they will be much better than a bank.

Re the tax position, yes you can deduct any interest payments from taxable income on a property if you are letting it out. Even if it is interest only, yes it can be fully deducted. Buy to let, let to buy no difference, any interest paid on the mortgage on prop a will be deductible from rental income.

My only advice is to make sure your friend goes through his figures correctly, and obtains from the lender their lending criteria re let property - they will have interest cover restrictions which will determine how much ltr they can offer. If you have an agent finding tenants they will take a slice, less flat management charges and then tax on top. If he's paying off another mortgage on another house I'd be surprised if he wouldn't be better off cash wise just selling up and using it all as deposit on the new place.
 
And at the bottom of the ladder some poor git will be working their cobs off to pay for this! Where are the socialists when they are needed?
 
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