Buy to Let- interest only with overpayments vs capital Repayment - HotUKDeals
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Buy to Let- interest only with overpayments vs capital Repayment

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Hi I am coming to remortgage my mortgage on a BTL. I have always gone for a traditional capital repayment means. unfortunately Santander wont allow me to borrow what i want on a repayment basis. It wi… Read More
Cheapasnowt Avatar
2w, 6d agoPosted 2 weeks, 6 days ago
Hi I am coming to remortgage my mortgage on a BTL. I have always gone for a traditional capital repayment means. unfortunately Santander wont allow me to borrow what i want on a repayment basis. It will only allow me a lower amount. I have the option of going on an interest only basis and my broker is suggesting i take this and use overpayments to mimic a capital repayment mortgage.

The costs are circa £930 on a repayment basis and £275 on an interest only basis. 10% overpayment will allow me to pay an additional £1200 per month if needs be.

Can anyone advice me about the pitfalls of doing this. Currently on a repayment basis most of the "profit" is being absorbed by other half's tax free limit so no tax is being paid. Doing this would mean only would be allowed to put £275 per month odd towards claimable interest so remainder from rent would be taxable.

I'd really appreciate someone else's opinion on the issue.
Cheapasnowt Avatar
2w, 6d agoPosted 2 weeks, 6 days ago
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#1
Has your property risen in value over the years?
If the answer is yes then interest only is the way to go as the rise in value should always be higher than the outstanding mortgage.
Every one of my properties is interest only.
Don't forget to claim for every single little item you can and all the mileage you use visiting the property.

Edited By: thedvdmonster on May 08, 2017 19:37
#2
Not sure what you asking? Your broker, a trained and qualified expert who has presumably carried out a full know your customer exercise, has already given you sound and reasoned advice why ask a bunch of willing amateurs who have no idea about your circumstance. BTW going forward tax will be charged against the rent received not the profit so don't over commit.
#3
my broker has given me a response after about 15 minutes chat- pushing me towards an interest only basis. He hasn't done a KYC check- i'm merely trying to determine if there are any other pitfalls. I cant believe it will be as easy to say go int only and make overpayments to essentially transfer it to a capital mortgage.

If one is on an interest only mortgage is it more difficult to switch to a capital basis one.

And no- capital hasn't risen in the property really over past few years.
#4
OP, sounds to me that you don't have a choice if you want borrow the amount you want you will have to get an interest only and quite good advice from the broker about overpayment - you'll just need to manage your finances a bit more than with a capital repayment mortgage.
#5
Interest only is a perfectly reasonable option provided you have the discipline to maintain the over payments or a plan B to settle the balance if not. It does give you more control over the payment. If it's the only way to get the amount you need go with it.
#6
So you're saying that your Mrs will have to pay low rate tax on an extra 655 per month? It all depends on your lifestyle.. you obviously have been managing repaying the mortgage capital plus interest but on disposal you'll still get taxed above your capital gains allowance... as the dvdmonster advised try to do your best to avoid tax by claiming everything you can and my general rule is interest only to create positive cash flow as that can be then reinvested to make more cash... long term, the actual asset liability of the house will generally erode by inflation so when you sell it should more than cover the interest only mortgage and should make a profit
It all depends on your retirement plans and current needs for cash though
#7
It would appear you don't have a choice so you have to do the suggested broker route. If you are a high rate tax payer then interest payments will become restricted for tax exemption.
#8
Btw capital repayment is not tax deductible, only the mortgage interest is allowed to be claimed. So don't understand how you are managing to claim the repayment part.
#9
Just an aside. If you and your other half are both on the deed you must split the profit equally for tax purposes you can't put it all on one person.
#10
sherbolton
Just an aside. If you and your other half are both on the deed you must split the profit equally for tax purposes you can't put it all on one person.

this! HMRC will consider this as profit earned by both and so each person has to declare their own tax position.
#11
sabp
Btw capital repayment is not tax deductible, only the mortgage interest is allowed to be claimed. So don't understand how you are managing to claim the repayment part.

Missus is a non tax payer- so after allowing for interest only the rest of the profit is swallowed up by her tax free allowance.
#12
sherbolton
Just an aside. If you and your other half are both on the deed you must split the profit equally for tax purposes you can't put it all on one person.

Nope as missus owns the vast majority of property- 99% to be exact. Need to pay to arrange this initially (£300) but well worth it now going forward.

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