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  • Mortgages & Finance

    Changing our current home to B2L

    Dear All, I’m new to this site and would like some advice please. We’re looking to relocate to the countryside but want to hold onto our current home and use it as a B2L / retirement fund for later.

    When applying for our mortgage on property number 2 will the bank take future rental income into consideration for their affordability calculation? Also will the remaining balance on our current property form part of the amount I can borrow for property number 2?

    Hope this makes sense!

    Thanks in advance!

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    Hi Paul and welcome.

    What you are proposing is very astute and perfectly possible - in fact, its exactly what my husband and I did 15 years ago when we started building our portfolio.

    These are the steps you will have to take to achieve your goal:

    1.  Raise a BTL mortgage on your current home.  This will be based on how much borrowing the rent will support.  If you let me know what you believe the monthly achievable rent will be, I can give you a rough indication of how much borrowing that will support.

    2.  Once you have raised the mortgage, pay off the existing residential loan.  Anything left over is equity to put the deposit towards your new residence.

    3.  Raise a residential mortgage for your new home.  This will be based on your income and it is unlikely that a lender would consider the rental income from the property towards that.

    You will need to co-ordinate this, as the BTL lender will want to know your new address to ensure that you are actually intending to move out of the property.

    The broker team at Property Tribes Financial Services deal with residential and BTL mortgages and are "whole of market" meaning they can access the best possible products for you at the most favourable rates.  They are also highly experienced in the above process and will ensure that it all runs smoothly for you.

    This thread would be a good read for you:  Using residence as stepping stone to BTL

    Hope that helps and don't hesitate to ask any further questions.  Good luck!

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    Hi Vanessa,

    Thanks for taking the time to reply- some really valuable points that I’ll need to investigate further.

    kind regards

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    Hi Vanessa,

    I think we’ll be able to achieve about £1300 pm rent from our current residential property. I’m a 40% tax payer, so could you give me any idea what (after probable costs/ deductions associated with a BTL mortgage) what would be left of £1300?

     Thanks in advance.

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    Hi Paul,

    That rent supports a borrowing of £195,600 at the highest stress test.  It might support more if you used a product with lower rental to mortgage coverage.

    The costs would be the monthly mortgage payment, buildings & landlord insurance (allow £60.00 per month), repairs, & maintenance.  If you used a lettings agent on a fully managed basis, allow 10% of the rent collected for their fee.  There will also be tenancy set-up fees, but these will be dependent on the agent.

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    Thanks Vanessa. So, just so I’m clear, once I have converted property 1 successfully to BTL, the remaining mortgage balance on that won’t be considered when I’m applying for the residential mortgage for property 2 (this would affect my borrowing/ affordability calculation).

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    15 years ago it was a differant kettle of Fish

    what is the cost of the new Property

    They are Higher rate tax payers S24 will effect them one way or another

    when they do come to sell in the future all the profits in the old home will be taxed

    The exemption of the time you lived in the property is going

    This could be a very costly in terms of Stamp Duty Income Tax and CGT

    Its not as easy as it was I worked out Fag packet that the Income Tax bill on profits will be around 60%

    They need to sit down an Think about this One



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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.


    Vanessa is right on the strategy.

    Your BTL is really a let to buy which can trip up some borrowers. This will usually be based solely on the rental potential, although more recently the ability to "top up" from other earnings has become more prevalent allowing you to use surplus income if necessary to borrow more.

    You need to be able to prove you are moving out. Vanessa's suggestion is the best option but there are other options.

    A mortgage on your new home will be based on your ability to pay. Few lenders will take into account the rental property so affordability is assessed based on your earnings/other taxable income.

    All this is fairly standard for a broker.

    If you have more than enough income to borrow then consider the tax position as there is some deductibility of interest for tax purposes (20%) for your rental business borrowings but not for your home - look at the after tax cost of funds. Also remember the additional 3% stamp duty. If you don't already submit a tax return it is likely that you will now need to, so take advice to ensure you understand the costs and necessary timings of tax payments.

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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022


    Hi,

    Thanks very much for the response and advice. Much appreciated!

    kind regards

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    I would also check to see how S24 will effect you as you are a 40% Tax payer

    do the sums

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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.


    Just done some fag packet figs on s24

    Assumptions Salary 60k 40% Tax Payer

    Rental Income  £15600

    Exspnces          £800

    Mortgage £195,600

    Interest @ 3.7% fixed 5 years £7237

    Profit £7563 Tax due at 40% £3025

    Now with S24  The tax bill will be £4477 

    You will be paying an income tax rate of around  60% on your profits

    and you will also pay higher stamp duty when you purchase your new property You haven't mentioned the cost of your new home

    Plus you will most likely have costs for re arranging you old Mortgage

    My advice is borrow as little as you can if you go head

    And take note that in the coming years when you come to sell your own home the sale could possibly be tax on every penny profit you have in the property now the allowances are going

    Look at the New HMRC rules carefully

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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.