Hello everyone. I hope that someone can help me with some advice. My situation is that I am currently concluding on a house purchase and have a new mortgage on this property. My residential home has been on the market for £130,000 but so far has not sold. It is mortgage free and was originally bought in 2001 for £43,000. I have now decided to rent this house out for a year or so once I move. Can I release equity from this house, without remortgaging, to offset interest on the other mortgage? How much could be released and how can I do this?
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You can remortgage the property up to it's value when 'first let' the interest would be offsettable against the rental income, so you need to run some numbers. The equitity raised is not restricted in it's use and could be used to pay off parts of the new homes mortgage. The mortgage raised on your new home is just that and was not raised to use in your new B2L business, so this would not be deductible. Regards Peter -
Peter
Many thanks for that. Could you please clarify what the term 'first let' actually means? Can I remortgage after letting or do I need to do it before for offsetting interest? What is the maximum mortgage amount I can offset?RegardsComment
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You can remorgage it at any time but to deduct the mortgage from the rental income the mortgage must not exceed the established ( Cartered Surveyer ) valuation when The first property first enters your rental business. The date the tenant contractually moves in. Regards PeterComment
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Thanks again Peter. Can you tell me does it have to be a Chartered Surveyor who provides the valuation? What about an estate agent who isn't RICS? Is that acceptable? RegardsComment
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It may be acceptable if the district valuer agrees with the valuation. If you have evidence of other similar properties in the same road being sold then that would/should support your figure. However I have just read you original thread and there may be a problem that the property has been on the market and did not sell so the asking price may not respresent the true value of the property in a difficult market. Regards PeterComment
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No point worrying about any of the above.
If a bank is going to lend you money, it will require a valuation - which will no doubt be by a RICS member. Even then, it will be a BTL loan, so probably they will lend you no more than 75%. So you will be well under any valuation of 130k.
N.B. You may be better off (if you have other equity) taking out a residential mortgage and foregoing tax relief. Current resi mortgage rates are well below BTL.Comment
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