Interest rental offset issue - barriers every turn

[James Holmes]

Hoping somebod can help. Re: mortgages i'm calling a broker from the other thread monday.

I wish to move out of my flat and rent it.

It was originally purchased for 120k through a 60k mortgage and 60k cash.

Before purchase I wanted to get a 100k mortgage and pay off 40k from another property mortgage (my previous residence now with my wife) that i had so that the 100k sat on the flat. I did not do so due to early redemption charges etc.

Now that I want to rent I want to somehow account 100k for interest offset purposes.

Is there an easy way to do this before I rent it out? The lender on the flat will not increase my lending, and remortgaging to pay of the whole 100k for both properties against the flat is not working either.

Maybe i can remortgage on the other property and account it towrds the flat rental?

Struggling to make the figures work....

[TaxationPete]

You need to raise equirty on the flat up to but no more that the value it will have when 'first let' This equity is not restricted in it's use and you can pay off the main house mortgage is you so disire and all the interest against the Flat is deductibl. However be very aware of this as remember that you deduct the interest from the rental income so you are only saving the tax on that amount whilst having a larger mortgage, you need to run some real numbers. Regards Peter

[James Holmes]

Noted with thanks.

Sadly, the current mortage providers on the flat (Northern Rock) no longer provide additional lending (only secured loans at a very high rate of 9.69%).

If I remortgage now another company will add a couple of % to the rate as i'm to let it, so what I save by increasing the mortgage on the flat by 40k and offsetting that interest, I lose by the increase in the mortage rate for lettings (northern rock allow me to let under residential rates).

Any other ideas (straw clutching..)

[TaxationPete]

That is why I said that you need to run some real numbers. Your scenario is not uncommon. Regards Peter

[subjecttocontract]

Have you considered taking a flexible mortgage on your PPR. This may allow you to have a facility to borrow more than the actual mortgage and you can then offset that interest on your flat e.g. Virgin/ RBS flexible mortgage is around 3.75% variable.

[James Holmes]

Flat valued £150k (existing mortgage £60k)

House valued £300k (existing mortgage 40k)


When I move out of the flat and in to the house, and before I rent the flat, I could quite easily remortage on the house for £100k and pay off all the other mortages... I don't know how I record/evidence the interest on this new 100k on the house against the rental of the flat? Do I simply claim the interet deduction on my tax return then if asked simply show that I have a mortgage on the house an just tell them it relates indirectly to the flat..

[James Holmes]

Have you considered taking a flexible mortgage on your PPR. This may allow you to have a facility to borrow more than the actual mortgage and you can then offset that interest on your flat e.g. Virgin/ RBS flexible mortgage is around 3.75% variable.

Rates sound good. I can easily get these/or first direct 3.49% 60% LTV on the house, as in my above post, if I am allowed to do this. I know I need to really talk to a tax professional outside of this forum - i'm so close though now

[TheManOnTheBus]

....Do I simply claim the interet deduction on my tax return then if asked simply show that I have a mortgage on the house an just tell them it relates indirectly to the flat..


This sounds very much like the problem I am struggling with (see my posts in another thread; in particular, this one: http://www.landlordzone.co.uk/forums/showthread.php?p=157964#post157964). If you get an answer or more thoughts do let me know.