Three months mortgage holiday

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    Three months mortgage holiday

    I applied to my mortgage lender for a three month break from paying my mortgage i.e. interest only with monthly payments of circa £1850.00....This was carried out online with the bank explaining that should my application be approved then the £5550.00 would be added to the balance of my loan and monthly interest payments would be adjusted accordingly after the three months. I didn't hear any more but noticed my monthly mortgage payment wasn't taken on the due date 30/4/20. Last month I received all the tenants rents as normal and I have a decent buffer for void periods etc so as yet didn't really need a break from my normal monthly payments......After speaking with my accountant yesterday he explained that if the tenants remain and are paying their rent then the £5550.00 will be treated as income and subject to tax which in my case will be 40%...Just checking if he is correct before contacting my lender with a view of carrying on as normal without the 3 month holiday.....Thanks.

    #2
    If that's what your accountant actually said, you should change them.

    I suspect what they actually said was that because you will have the same amount of income, but £5,550.00 less allowable expenses in the tax year, you'll end up with more net income and pay more tax.
    Because that's probably true.

    Even at 40% income tax, you get 60% of the income, so it's not all bad news.
    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


      #3
      Thank you jpkeates....Yes, he told me I'd have a greater net income which would be subject to tax. I thought it would be treated as a further advance against the equity in the property and not as income as such. So I'll only get £3330.00 after tax which will cost me just under £20.00 per month extra on monthly mortgage payments......I don't need the money and wondering if I should contact my lender to say I made a mistake requesting the mortgage holiday but there could be admin fees to pay perhaps.....what would you do?

      Thanks again.

      Comment


        #4
        personally i would ring the lender and cancel the holiday if you can afford to pay , its going to cost you more in the long run if you have a mortgage holiday

        Comment


          #5
          I have no idea what your lender might be able to do or what they'd charge.

          While you'll pay more tax this year, you will still have some additional income and in future years, your increased interest will be allowable against tax, meaning you'll pay slightly less tax.

          Over the term of the mortgage I think you'll pay a little more interest, which means you will earn slightly less income, compensated for by the increased income now (with corresponding increased tax bill).
          But it's pretty much essentially a matter of timing, you're not hugely in or out of pocket over time.

          I'm not at all clear what the issue is or what you're trying to achieve that's changed since you elected to take the three month holiday.
          The tax is simply an inevitable consequence of that decision.
          The alternative seems to be that your tenants should also stop paying you rent in parallel, that'll reduce your tax, but at the cost of reducing your income.
          Which doesn't seem a good outcome.
          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


            #6
            Three months holiday is only a delayed payment .

            You still have to pay the the missed payments as being in arrears later..

            Comment


              #7
              I originally thought that providing my tenants were still in place and paying their rent as normal (good long term tenants of 5 years plus) then after 3 months I'd be well over £5K better off which would pay for a decent holiday or a treat without any impact apart from an additional £20.00 per. month to support my slightly increased mortgage borrowing..... I should of course looked into the consequences more but as "jpkeates" points out it's not really here or there over the term....I have 6 years to pay off the loan when it'll be my intention to sell up but if it were a normal market of let's say three months ago then I've still got £500K equity (less GCT).....Cheers all

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