Advantages of combining all your buy to let mortgages on to a single BTL portfolio mortgage account.
The private rental sector has grown from strength to strength in the last few years, as more people look towards renting long term. This trend is predicted to continue well in to 2013/2014, with some property experts predicting much longer still. This increased demand for rental accommodation has been great news for private landlords.
Record low mortgage interest rates, high rental yields and an uncompetitive housing market, make this an ideal time for landlords to expand their property portfolio – if they are able to do so.
In addition to experienced landlords expanding their property portfolio, we have new property investors entering the market due to the profitability which owning a buy to let portfolio can generate.
Most landlords start off with a single buy to let mortgage and purchase new buy to let properties with new, separate buy to let mortgages. Depending on what BTL mortgages where available at the time each new property was bought, it is quite likely these BTL mortgages are spread over different lenders as new products come to the market, this can make keeping track of mortgages, accounts, payments and fees increasingly difficult and time consuming (and may also be reducing the profitability).
Combining separate BTL Mortgages to a single BTL Portfolio Mortgage has many advantages, the main ones are:-
1. You have one account to manage. This means you will only have one direct debit mandate, one monthly payment, one mortgage statement and one set of interest charges for the entire buy to let mortgage / property portfolio. This covers all of the property in your portfolio and if you wish to add or remove property from this portfolio you do not have to “re-mortgage” this can save thousands in fees over the years.
2. With portfolio mortgages you have the possibility of drawing down equity from the combined property value to buy more property. This can make purchasing additional property much easier and cost effective, as you avoid the often expensive re-mortgaging fees on multiple accounts. Instead you have a much smaller arrangement fee for purchasing new property.
3. However, probably the most beneficial element of the BTL Portfolio mortgages (and quote why they are becoming so popular) is the fact they can be taken out on behalf of a limited company, rather than an individual. Corporation tax is lower than income tax, and so this transfer from individual to company account can greatly reduce the tax liabilities of the property owner(s).
4. With a little careful planning you can use the equity built up in your buy to let portfolio to pay down the mortgage on your main residence. The result of this is more interest relief on your buy to let business, and lower mortgage payments on your main residence.
Tax advantages of a portfolio mortgage
As rental interest can be off set as an expense against rental income profit, it is logically that higher the interest payments will reduce profitability and tax liabilities. This is the premise that most portfolio mortgages operate.
As detailed in “PIM2105 – Deductions: Interest: Introduction” on buried section of the HMRC website which says as long as the property passes the wholly and exclusively test applied to normal business expenses, then the mortgage interest is fully deductible.
Further, details on “BIM45700 – Specific deductions – interest: Withdrawal of capital from a business” confirms that the owner of any business can withdraw any equity from the business and the interest that remains is fully allowable as a business expense because the original reason for the mortgage still remains (as long as the withdrawal of equity does not exceed the value of the business, with the business in the taxmans eyes being the capital invested in the property itself.
This means that you can expand a property portfolio using equity from existing properties and the interest paid is allowed in full as a deduction against rental profits. This together with the portfolio mortgage being “owned” by a limited company has the potential to greatly lower the tax liabilities on the buy to let properties.
Transferring buy to let equity to pay down your main residence mortgage
BIM 45700 Mortgage Interest Relief creates a little known strategy where by a landlord with equity in their buy to let properties can use this equity to pay down the mortgage on their main residence. This shifts the debt on to the properties in which mortgage interest relief can be claimed on the full amount.