[Finance] Buy to Let Mortgages

[Herr Tubthumper]

Question for the panel.

I bought my btl in 2006. .
I never deducted the cost of setting up the mortgage (2k) in my annual self assessment as an allowable expense as I thought it was a capital expense. I was wrong.
Can I still claim now on this year’s income return ? (Potentially saving hundreds ) Or is it too late ?

Best to ask an accountant. I’m not sure about self-assessment but I once had a significant business expense which I forgot about for 3 years and was able to set it off from my company tax.

 

[Herr Tubthumper]

Here's one for you guys and relates to someone I know.

You have a flat you rent out with a lease of 93 years.To bump that lease up will cost around 36K.
To sell and buy a freehold flat will mean you will pay around 36K in CGT.

Is there another option?

I’m surprised that the lease is so much.

 

[Herr Tubthumper]

Whilst on the subject of leases and freeholds can anyone recommend a surveyor in Brighton to value a freehold price? I’ve been quoted 900 which seems a bit steep.

 

[Renegade1]

Find out the ground rent and enter the details into an online calculator to find out how much it should cost to extend the lease. £36k sounds way off to me.

Er, a mortgage

Well it's different now, but in the old days you could get 100% mortgages, and property was not too expensive.

And where does's the mortage come from?If the rent is £1000 per month and you can borrow 4 x that which is only 48K.

 

[mikeyjh]

If you lived in a property and then moved out and let it, this is called a let-2-buy mortgage. They basically convert your primary residence mortgage to a BTL

All this talk of mixing residential with letting mortgages - remember the basic principle is that everyone can have a primary residence mortgage [assuming lending criteria met] but as soon as you want another property mortgage - e.g. BTL this is a kind of business loan so must attract a slightly higher % rate.

Also, the point of making over payments on an Interest only mortgage does not, in my experience with Nationwide, actually reduce the capital [principle sum] of the loan. Your account simply goes into credit which will allow you to take a payment "holiday" if you wish, or have the money returned. I suppose it might be possible to ask the lender if they would accept it as payment against capital, but you cannot have an interest only mortgage and treat it as if it were a repayment mortgage [to your benefit].

Your post hits (and your next one) upon an important point - That all the advice shared here is useful, but only in the context of one's personal circumstances. Anyone claiming that one particular way is better than another is giving poor advice as you simply cannot do that without a clear understanding of personal circumstances.

For example, I see you you're going down the interest only route which clearly suits your own needs whereas I own mine, which is perfect for me

 

[Uncle Spielberg]

And where does's the mortage come from?If the rent is £1000 per month and you can borrow 4 x that which is only 48K.

It is not worked out like that

 

[Renegade1]

It is not worked out like that

How is it worked out? I assume on your overall earnings but if they have gone towards a mortgage/mortgages on other properties......?

 

[Weststander]

How is it worked out? I assume on your overall earnings but if they have gone towards a mortgage/mortgages on other properties......?

Loan to value ratios, then ability from the rental income to service the debt?

 

[Uncle Spielberg]

How is it worked out? I assume on your overall earnings but if they have gone towards a mortgage/mortgages on other properties......?

Buy to lets are based on the rental income, stated in the thread and examples given, however most lenders require a minimum personal income of £ 25k pa to show the mortgage could still be paid if their was a problem with the rental payments

 

[Triggaaar]

You are decent as well

Get in Thank you Uncle!

 

[Triggaaar]

And where does's the mortage come from?If the rent is £1000 per month and you can borrow 4 x that which is only 48K.

As explained above, it's not worked out like that.

4 times your personal income is used for you home, because you also have to use your income to pay for everything else in life - council tax, gas/elec, water, food, car, clothes, etc etc. With a rental property, the rental income has to cover the mortgage and it doesn't need to do much more than that. So companies used to ask for rental income to cover 125% of the mortgage, allowing for interest rate rises. The last btl I bought cost 325k, and I got a 275k mortgage for it.

 

[Triggaaar]

Whilst on the subject of leases and freeholds can anyone recommend a surveyor in Brighton to value a freehold price? I’ve been quoted 900 which seems a bit steep.

Would that leave you with an official valuation that the parties are somewhat tied to? It does sound a lot, hopefully someone can recommend better. Doesn't Uncle S know people that do this sort of thing?

 

[Beach Seagull]

If say for example without any rental income you are a basic rate tax payer, but with rental income it pushes you into the higher rate (40%) would you're salary start to be be taxed at 40% or would you're salary still be taxed at 20% but the rental income at 40%.

 

[DJ NOBO]

If say for example without any rental income you are a basic rate tax payer, but with rental income it pushes you into the higher rate (40%) would you're salary start to be be taxed at 40% or would you're salary still be taxed at 20% but the rental income at 40%.

It's seen by Hmrc as all one income . Worth loading up on your pension to keep taxable pay in 20%

 

[Weststander]

If say for example without any rental income you are a basic rate tax payer, but with rental income it pushes you into the higher rate (40%) would you're salary start to be be taxed at 40% or would you're salary still be taxed at 20% but the rental income at 40%.

The latter is true - your salary would still receive the full personal income tax allowance, so your net pay wouldn't fall.

 

[Beach Seagull]

The latter is true - your salary would still receive the full personal income tax allowance, so your net pay wouldn't fall.

Thanks for this although the reply above from Dale Jasper contradicts this?

 

[Weststander]

Thanks for this although the reply above from Dale Jasper contradicts this?

I'm correct on this. I'm not sure if he's wrong or not? But he made a separate valid point, about if you can afford to, some would advise upping payments into your pension scheme, to reduce the slice of income taxed at 40%. Many choose to as they need the income or aren't into pension saving ... e.g. BTL's is an alternative.

 

[Triggaaar]

Thanks for this although the reply above from Dale Jasper contradicts this?

Not necessarily, it's just how it's collected. HMRC look at the total, and you get taxed accordingly. Westander is just saying you keep getting paid as now, and then get taxed at 40% on the rental income. It's the same total as if you paid 20% on the rental and 40% on that part of your salary.

All that changes is how it gets to you and when you pay the tax (PAYE & self assessment).

I'm am correct on this. I'm not sure if he's wrong or not?

Isn't Dale an accountant?

 

[Herr Tubthumper]

Would that leave you with an official valuation that the parties are somewhat tied to? It does sound a lot, hopefully someone can recommend better. Doesn't Uncle S know people that do this sort of thing?

Well, the freeholder has offered us the freehold and suggested the price will be halfway between their estimate and ours as a starting point for negotiations. I’ll only pay what I think it’s worth..

 

[Triggaaar]

Well, the freeholder has offered us the freehold and suggested the price will be halfway between their estimate and ours as a starting point for negotiations.

If you just want an estimate, then just use a free online calculator and go from there.

https://www.freeholdcalculator.com/freehold_choose.php