Is it worth me getting a mortgage? And would I get the tax benefit in this scenario?

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    Is it worth me getting a mortgage? And would I get the tax benefit in this scenario?

    I am looking to buy my first home to live in, and I have over £200,000 in savings. I am considering a house which costs about £200,000. I could buy it outright, however my view has been that it would make sense to get a mortgage for as much as I can and then use the rest of my savings as deposits for buy-to-let properties. Do you think that this is worth doing or would it be better to buy outright and not do buy-to-let for now?

    Also my understanding is that if I already owned a property outright and then remortgaged it to free up some savings for a deposit for a buy-to-let property, I could offset the mortgage interest against my rental income as this was the purpose of the mortgage. If I took out a mortgage in the first place to keep my savings for buy-to-let, would I be able to do this or would HMRC's view be that the borrowing was for personal reasons?

    I am also a bit concerned as to whether or not I will be able to get a mortgage at the moment as I'm self-employed and have not worked for the last couple of months due to coronavirus, but have claimed Rishi's grant. I understand that a lot of lenders are not counting this as income and want 3 months of bank statements. This means that I might not be able to apply for a mortgage until October and I am hoping to move in November when my current tenancy ends. Do you think that I could go for a delayed completion with a property and sign contracts soon to secure it, but keep it open whether or not I will use a mortgage (as I can pay with cash if need be)?

    Finally, I have a help-to-buy ISA so another factor is that if I can get a mortgage, it may be worth doing despite the fees even if I don't need the borrowing [perhaps the smallest mortgage amount possible!], since I would get £3000 for using it. I find it very frustrating that you can't get the help-to-buy ISA saving if you don't get a mortgage. I have worked hard for several years and avoided spending any money so why should the government penalise me if I don't need to borrow money?

    #2
    I’ve never heard of being able to offset residential mortgage interest against rental income even if capital was released for the purpose of buy to let investment.
    Going by your previous posts you seem to be very indecisive about actually taking the plunge and purchasing any type of property. Obviously I don’t know all your personal circumstances but I’m wondering why you’ve saved up £200,000 whilst renting instead of buying with a mortgage ages ago?
    If I was you I would put the buy to let ideas to the back of your mind for now and just think about getting your own place to begin with, but don’t forget prices could come down after your planned move in date of November.
    I can’t see it making much difference if you buy with a mortgage or outright. If you buy outright you can then get settled in and do any decorating etc that needs doing and then after 6 months you will have access to a large selection of mortgage deals where you could release equity for buy to let or you could buy with a mortgage to begin with and keep a large chunk of cash in the bank to see you through any downturn in work brought on during the almost certain recession that is on the way or use it as overpayments on your residential mortgage if you decide not to go to down the buy to let route.

    Comment


      #3
      Originally posted by BTL investor View Post
      I’ve never heard of being able to offset residential mortgage interest against rental income even if capital was released for the purpose of buy to let investment.
      My understanding is that this is permissible. I have considered doing / wanted to do it myself in the past.


      Originally posted by mlod42
      If I took out a mortgage in the first place to keep my savings for buy-to-let, would I be able to do this or would HMRC's view be that the borrowing was for personal reasons?
      I think the latter.

      What I have found when investigating this previously is that if taking the remortgage route you will probably be required (e.g. by a broker) to explain exactly what you want to put the money into. I wanted to just get capital out of my property in order to be in a position for a cash purchase with a quick turnaround. Brokers said 'no' due to anti-money laundering rules and/or the fact that it would be financially disadvantageous to me in the short term. It should be OK in the case where you have the time available to find a property, decide you want to buy it, and arrange a remortgage of your own property for that purpose.
      There is a fine line between irony and stupidity. If I say something absurd please assume that I am being facetious.

      Comment


        #4
        Originally posted by doobrey View Post

        My understanding is that this is permissible. I have considered doing / wanted to do it myself in the past.




        I think the latter.

        What I have found when investigating this previously is that if taking the remortgage route you will probably be required (e.g. by a broker) to explain exactly what you want to put the money into. I wanted to just get capital out of my property in order to be in a position for a cash purchase. Brokers said 'no' due to anti-money laundering rules. So it should be OK in the case where you have the time available to find a property, decide you want to buy it, arrange a remortgage of your own property, etc.
        It’ll be welcome news to me if it is true. I hope somebody else can confirm.

        Comment


          #5
          Originally posted by BTL investor View Post
          I’ve never heard of being able to offset residential mortgage interest against rental income even if capital was released for the purpose of buy to let investment.
          Going by your previous posts you seem to be very indecisive about actually taking the plunge and purchasing any type of property. Obviously I don’t know all your personal circumstances but I’m wondering why you’ve saved up £200,000 whilst renting instead of buying with a mortgage ages ago?
          If I was you I would put the buy to let ideas to the back of your mind for now and just think about getting your own place to begin with, but don’t forget prices could come down after your planned move in date of November.
          I can’t see it making much difference if you buy with a mortgage or outright. If you buy outright you can then get settled in and do any decorating etc that needs doing and then after 6 months you will have access to a large selection of mortgage deals where you could release equity for buy to let or you could buy with a mortgage to begin with and keep a large chunk of cash in the bank to see you through any downturn in work brought on during the almost certain recession that is on the way or use it as overpayments on your residential mortgage if you decide not to go to down the buy to let route.
          Thank you for your response.

          With regards to offsetting residential mortgage interest against rental income, someone said "However you borrow to fund a buy to let property, whether you raise the money on your own home, or on the let property itself, or both, the mortgage interest can be offset against the rental income for tax purposes upto the full cost of the property." on another forum [https://forums.moneysavingexpert.com...-another-house] - perhaps this information is incorrect though. If it's true, I would imagine that a lot of people could benefit from it if they could borrow at a lower interest rate by doing this.

          My position is a bit unusual in that I was actually that I was living in my parents' second home for free for a long time - this is why I was able to build up to much in savings and why I have not been in a hurry to move - my parents were rarely there so it was almost like having my own place for free! However, just before the lockdown they came down there to isolate and wouldn't "allow" me to go out to work, when my work was still going ahead. As a man in his mid-twenties with plenty of savings, I felt that it was absurd to be imprisoned by my parents which is why I am in a rental now, and I am looking to buy something of my own to move into when the tenancy ends.

          I am thinking of trying to secure something for 10% less than the price would have been before coronavirus on the grounds that prices may fall - I don't know what my chances are of a seller dropping the price this far though.

          The reason I'm particularly interested in getting a mortgage before the purchase if I get one is the £3000 I can get because of my help to buy ISA. If I get a mortgage 6 months later, I presume that the fees would be similar and the interest over those 6 months would not have been so bad but I would miss out on this £3000. Also, I do have some money in ISAs including a stocks and shares ISA at the moment which is doing well so getting mortgage before purchase would allow me to leave the money in the ISAs for now.

          Also do you know if lenders ever take savings into account when considering a mortgage application? As mentioned, I may not be able to get a mortgage at the moment as I am self-employed and have not been working for most of the lockdown, however it seems to me that if I keep enough savings to be able to pay my mortgage forever with the savings if need be, I am not a risk to the lender! [I always think that too much emphasis is put on income when people may have savings - I had to prove my income for my rental which seemed absurd as I have enough savings to cover about 30 years of rent here!]

          Comment


            #6
            Originally posted by doobrey View Post

            My understanding is that this is permissible. I have considered doing / wanted to do it myself in the past.




            I think the latter.

            What I have found when investigating this previously is that if taking the remortgage route you will probably be required (e.g. by a broker) to explain exactly what you want to put the money into. I wanted to just get capital out of my property in order to be in a position for a cash purchase with a quick turnaround. Brokers said 'no' due to anti-money laundering rules and/or the fact that it would be financially disadvantageous to me in the short term. It should be OK in the case where you have the time available to find a property, decide you want to buy it, and arrange a remortgage of your own property for that purpose.
            Thanks for your response - with regards to deducting the mortgage interest as I said in my original post, I read that this was possible on another forum (please see my previous reply on this thread) and perhaps naively, I assumed that this was correct.

            Ah so are you saying that it is a specific problem to buy a property outright and then remortgage it due to money laundering? It is very sad if that is the case.

            Comment


              #7
              As Doobrey says you could have a few issues regarding money laundering regulations if you try to remortgage after buying outright but in my recent experience of releasing large amounts of equity from two properties that I owned outright there was no issue with being given the permission to release equity I just had to show evidence of how I came to own them outright so that meant trying to dig out old copies of paperwork from previous lenders showing evidence of paying off previous mortgages and contacting previous conveyancing companies for completion certificates which actually was quite a bit of hassle and caused some delays waiting for the paperwork i needed.

              Comment


                #8
                Originally posted by mlod42 View Post
                with regards to deducting the mortgage interest as I said in my original post, I read that this was possible on another forum (please see my previous reply on this thread) and perhaps naively, I assumed that this was correct.
                I believe it is correct. Hence:

                Originally posted by doobrey
                My understanding is that this is permissible.
                See for instance:

                https://www.taxinsider.co.uk/claimin...main-residence
                "It doesn’t matter what the borrowings are secured on - it matters what the borrowings are for."


                Originally posted by BTL investor
                in my recent experience of releasing large amounts of equity from two properties that I owned outright there was no issue with being given the permission to release equity I just had to show evidence of how I came to own them outright
                That's interesting. Did you use a broker? I spoke to a few brokers a year or so ago and they seemed fairly adamant on this.
                There is a fine line between irony and stupidity. If I say something absurd please assume that I am being facetious.

                Comment


                  #9
                  Originally posted by doobrey View Post

                  I believe it is correct. Hence:




                  See for instance:

                  https://www.taxinsider.co.uk/claimin...main-residence
                  "It doesn’t matter what the borrowings are secured on - it matters what the borrowings are for."
                  Ah sorry, that's great that you have been able to provide further confirmation! Am I right in thinking that I could only benefit from this if I buy outright and then remortgage, rather than buying with a mortgage in the first place? If so, it seems rather absurd.

                  Comment


                    #10
                    Originally posted by BTL investor View Post
                    As Doobrey says you could have a few issues regarding money laundering regulations if you try to remortgage after buying outright but in my recent experience of releasing large amounts of equity from two properties that I owned outright there was no issue with being given the permission to release equity I just had to show evidence of how I came to own them outright so that meant trying to dig out old copies of paperwork from previous lenders showing evidence of paying off previous mortgages and contacting previous conveyancing companies for completion certificates which actually was quite a bit of hassle and caused some delays waiting for the paperwork i needed.
                    Ah that seems over the top to me. It doesn't make any sense to ask you to prove how you paid for your house when you have already done so, just because you want to borrow some money. My money is currently saved in lots of bank accounts so for me, do you think that it would be a case of just showing a bunch of bank statements from now to show that I had that money?

                    Comment


                      #11
                      Originally posted by mlod42 View Post
                      Ah sorry, that's great that you have been able to provide further confirmation! Am I right in thinking that I could only benefit from this if I buy outright and then remortgage, rather than buying with a mortgage in the first place? If so, it seems rather absurd.
                      It's not absurd, but your belief is correct.

                      It's the purpose of the loan that matters - because a business expense has to be solely and exclusively for the purposes of the business.
                      Buying your home with a mortgage is not solely for the business, while taking out a loan specifically to create funds for your business is more likely to be.
                      Technically you'd have to spend all of the equity released on the business otherwise only some of the interest would be allowable.

                      When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                      Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                      Comment


                        #12
                        Originally posted by mlod42 View Post
                        My money is currently saved in lots of bank accounts so for me, do you think that it would be a case of just showing a bunch of bank statements from now to show that I had that money?
                        They'll want to know where the money came from to go into those accounts.
                        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                        Comment


                          #13
                          Originally posted by mlod42 View Post
                          It doesn't make any sense to ask you to prove how you paid for your house when you have already done so, just because you want to borrow some money.
                          It's AML. As a broker explained to me, it would be a good money-laundering strategy to buy a load of property for cash and then remortgage it.

                          There is a fine line between irony and stupidity. If I say something absurd please assume that I am being facetious.

                          Comment


                            #14
                            With regards to the lenders taking into account that you have savings that could pay off the mortgage you have to remember that they have no idea who you are and what may happen in your life. Say for example a dodgy builder swindles you out of your money or you meet a woman that you fall head over heels in love with and she gets you to spend it all on exotic holidays and expensive jewellery or you marry her and then she divorces you and gets half your money.

                            Comment


                              #15
                              Originally posted by jpkeates View Post
                              It's not absurd, but your belief is correct.

                              It's the purpose of the loan that matters - because a business expense has to be solely and exclusively for the purposes of the business.
                              Buying your home with a mortgage is not solely for the business, while taking out a loan specifically to create funds for your business is more likely to be.
                              Technically you'd have to spend all of the equity released on the business otherwise only some of the interest would be allowable.
                              Fair enough. It does seem absurd to me to say that whether I take out the mortgage before or after the purchase affects whether or not it can be considered to be borrowing for the purpose of the business - I feel that it's one of those things where no one's thought of it.

                              Comment

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