How to fund my first property ?

**Hudson01** · 04-02-2013 16:55 PM

On the surface of things i have two options. I am looking at buying my first investment property, i will probably be a 2 bed flat or a 2 bed terrace, costs for the flat about 60k and the house about 70k... i live up north

I have about £20k deposit in the bank, both my wife and i work full time and i own my own home outright which is a 3 bed semi.

So, would it be more sensible to just get a BTL mortgage and pop the £20k down as a deposit and away i go, or remortgage my home for either £40/£50k add in my deposit and buy which ever property outright ?

To add a bit of background ... my wife is not keen at all to endanger our home now its mortgage free, but finacially which would be the best best ? Ta.

**Claymore** · 04-02-2013 18:01 PM

Just use your 20K - keep some back for voids or unpaid rent.

If all goes good and you enjoy being a landlord - I'd remortgage your own house and borrow another 20K and get another property. Only if your wife has come round to the idea though.

**hech123** · 04-02-2013 18:14 PM

No No, you dont want to do that. Deffinately remortgage your own home. 1. You can buy for cash and get either a reposession or auction property (much cheaper) 2. It will be cheaper 3. If you decide its not for you the chances are you will of bought the property cheap enough to move on and not make a huge loss 4. if you like it and want to buy more you then get a BTL, chances are if you buy right you will recieve a much better valuation than what you paid giving you more money to move forward.

**Hudson01** · 04-02-2013 18:21 PM

Both opinions have their merits and i can see logic in them both, what Claymore says had been in my mind, to just go down the usual route and if it works out fine then just get £20k out of the house and get another.

**JK0** · 04-02-2013 20:27 PM

Hmm. But I'm guessing that if you remortgage your own house, and then buy the BTL for cash you won't be able to claim mortgage interest relief? Or am I wrong?

**jjlandlord** · 04-02-2013 20:41 PM

The loan would be wholly and exclusively for the purpose of buying property for the rental business. As such, and as I understand it, interests and fees would be deductible.

http://www.hmrc.gov.uk/manuals/pimmanual/PIM2105.htm

Based on that, hech123's suggestion makes a lot of sense, imo.

**Claymore** · 04-02-2013 21:10 PM

Originally Posted by Hudson01

Both opinions have their merits and i can see logic in them both, what Claymore says had been in my mind, to just go down the usual route and if it works out fine then just get £20k out of the house and get another.

Yes, both opinions do have merit and tbh, I myself did exactly as Hech suggested when I started out - but I was absolutely sure about what I was doing. The reason I suggested you use your deposit was so that you get a taste for the BTL and give your wife a chance to get used to it before going bigger.

I bought my first property and second at auction with cash and basically added value and remortgage later on. It is the way to go I think :-).

**Hudson01** · 04-02-2013 23:00 PM

I think the term i am thinking of is '' steady '', its my first toe dipping and although i only intend to have two properties, i still want to take it easy. I intend to get both on repayment and want them paid in 15 years. Thanks for the help and this forum has been a very good education prior to getting into being a landlord, i hope to not make the usual mistakes i see a lot making.

**Claymore** · 05-02-2013 07:19 AM

Originally Posted by Hudson01

I think the term i am thinking of is '' steady '', its my first toe dipping and although i only intend to have two properties, i still want to take it easy. I intend to get both on repayment and want them paid in 15 years. Thanks for the help and this forum has been a very good education prior to getting into being a landlord, i hope to not make the usual mistakes i see a lot making.

Don't get them on repayment!

You should get interest only and then put the amount equalling the 'repayment' into a savings account - an ISA if it is not fully utilised. Pay the loan off at the end.

The more you reduce the mortgage over the period, the more you will pay the tax man.

**jjlandlord** · 05-02-2013 07:54 AM

Originally Posted by Claymore

You should get interest only and then put the amount equalling the 'repayment' into a savings account - an ISA if it is not fully utilised. Pay the loan off at the end.

If the ISA rate is higher than the mortgage rate this may make sense. However I doubt this can commonly be the case these days.

Originally Posted by Claymore

The more you reduce the mortgage over the period, the more you will pay the tax man.

I'm not sure it makes much a difference as the amount that would be used to repay the capital is considered income either way.
Ie. however mortgage is repaid does not impact tax liability, (I would think).

What makes a difference for sure is the difference of the amount of interests paid as they are deductible.
In any case, best is to pay as little interests as possible.