# Best way - Borrowing on existing Mortage ??



## bilabonic (Jul 25, 2008)

Hi

Got my mortage down to a comfortable level and looking at purchasing a second home for rental/investment.

My current mortage is totally flexible and allows overpayments are allowed which is what i need.

If i goto my borrower and say i want money for another house will there be problems ?

Or should i just say i am building an extension ??

Or should i just ask for a second mortage which i don't really want to do.

Cheers


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## Spuffington (Jan 26, 2009)

Hi - you would probably be able to withdraw some equity in order to use as a deposit for the new place, but you would have to get a new mortgage for the rental property as Buy to Let mortgages have different terms to normal domestic mortgages.

If you go to your existing lender, you can use whatever excuse you want - I wouldn't go with the extension excuse as they'll take that into account when valuing your property after the extension. Something like a car purchase which is unquantifiable against your existing property would be fine.


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## R32rob (Feb 26, 2008)

^^^ What he said! :thumb:


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## edition_25 (Oct 7, 2007)

Theres nothing stoping you going into the bank and asking for a morgage for a new home, just as long as your able to make the repayments. They are going to ask what the second home is for and if you say to let the you will end up with a buy to let morgage... dont realy know anything about them tho


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## Spuffington (Jan 26, 2009)

Buy to Let mortgages should've had (pre-credit crunch), and certainly do now, tighter terms in terms of LTV covenants and also they now test rental income : interest cover ratios.

You'll need to take into account potential rental void periods - whether you can afford these and what impact these will have on your ability to service the mortgage. No longer will Lenders be happy with you relying on capital appreciation and rental just covering interest payments; they will also be looking for you to amortise the mortgage too. This is nothing too onerous in my opinion - it's just a prudent and sensible way of doing business and being a responsible landlord.

Unfortunately pre-crunch, making money out of Buy to Let was seen as a given - this was clearly not the case, when the property market is cyclical. Do your homework on property, local demographics, rental market, market rents, use of estate agent/letting agent and always bank on having to redecorate / refurbish every year - even if you don't on average, you will end up having to at some stage, whether it's just wear & tear or bad tenant.


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## winrya (Aug 4, 2006)

I'm sure you have have a Min of 30% of equity on buy to let mortgages ??


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## Spuffington (Jan 26, 2009)

I would not be surprised - sounds about right, even up to 40%, I would think.


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## APK (Oct 6, 2008)

Whether the new property is to be rented or not is irrelavant, if you are taking out against your existing property, it will solely be judged on affordability against your current income.
Taking on you home will be the cheapest as you will presumably be a low loan to value and get a good rate, BTL mtgs will be far more expensive.
Don't forget whereever you borrow the money from, you can offset the interest and any setting up costs against any profits, thereby paying less tax.
Don't tell your lender the funds are for an extension, as they will then insist on getting before/after valuations, and also plans/planning permissions, and costings! The purchase of a holiday home is perfectly reasonable, whether you intend to rent or not.


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## Spuffington (Jan 26, 2009)

APK said:


> Don't forget whereever you borrow the money from, you can offset the interest and any setting up costs against any profits, thereby paying less tax.


True, but only if the house to be bought is purchased through and held in a limited company. Depending on the costs involved in purchase and refurb (i.e. should be of significant enough size - £200k+?), the cost of setting up and managing the investment vehicle (accountant fees / companies house filings) might remove any benefit to be had from the tax deductibility.


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## APK (Oct 6, 2008)

Spuffington said:


> True, but only if the house to be bought is purchased through and held in a limited company. Depending on the costs involved in purchase and refurb (i.e. should be of significant enough size - £200k+?), the cost of setting up and managing the investment vehicle (accountant fees / companies house filings) might remove any benefit to be had from the tax deductibility.


???????? there is no need to set up through a limited company, any costs can be offset against profits simply by doing a normal self assessment return.

With regards to purchasing the property in a limited company, if there is any chance you may wish to borrow later, do not go down this route, very few if any lenders will accept SPV's now, and so will not lend to them.


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## Renmure (Jan 18, 2007)

APK said:


> ???????? there is no need to set up through a limited company, any costs can be offset against profits simply by doing a normal self assessment return.


 :thumb:

That is certainly the case for the vast majority of your set-up costs and will be able to be offset against profits irrespective of where the funds came to purchase the property.

Similarly, at the start of your "renting business" you can elect to offset a fixed percentage of income against wear/tear (10% / year) or you can do it by the specific amount that you spend on a year to year basis. (most take the 10% route)

It would be wise to speak to an accountant about the implications of purchasing a property to rent by extending your current mortgage to raise the funds just to make sure that this would be covered to allow you to offset the interest against profit. You need to submit the interest figure to the IR as it appears on a Certificate of Interest from your lender (obviosuly easy for a stand alone mortgage) and you would need to make sure that your lender would be prepared to issue this for the amount you put into the new property even though it is still all the original morgtage.


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## APK (Oct 6, 2008)

Renmure said:


> :thumb:
> 
> It would be wise to speak to an accountant about the implications of purchasing a property to rent by extending your current mortgage to raise the funds just to make sure that this would be covered to allow you to offset the interest against profit. You need to submit the interest figure to the IR as it appears on a Certificate of Interest from your lender (obviosuly easy for a stand alone mortgage) and you would need to make sure that your lender would be prepared to issue this for the amount you put into the new property even though it is still all the original morgtage.


In my experience having dealt with a number of accountants for clients about this, amazingly a lot do not seem to be fully aware of the rules, it does not matter where the funds are secured, it is the purpose of the loan, so if secured on your home, but used for business purposes you can claim, secured on a rental property, but used to buy a new car, you can't.
I don't think any lender would issue a certicate of interest on a proportion of the mortgage, that is for you or your accountant to calculate.


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## Renmure (Jan 18, 2007)

APK said:


> In my experience having dealt with a number of accountants for clients about this, amazingly a lot do not seem to be fully aware of the rules, it does not matter where the funds are secured, it is the purpose of the loan, so if secured on your home, but used for business purposes you can claim, secured on a rental property, but used to buy a new car, you can't.
> I don't think any lender would issue a certicate of interest on a proportion of the mortgage, that is for you or your accountant to calculate.


Not really looking to disagree (cause you may be right), but I do have the experience of having a modest number of rented properties, the 1st of which was funded using straight payment from my Current Account / Virgin One mortgage (which is effectively the same as an equity release from a standard mortgage and am confident that it would be wise to advise involving an accountant at the start to make sure the full benefit of tax relief.

When submitting my tax returns my accountant is fairly adament that the amount given in relation to loan interest payment must be that given on the Certificate of interest and specifically not as calculated by them. It's been a while since the first purchase but my clear recollection is that it is not as straightforward as apportioning a part of a domestic mortgage towards what is then effectively a property rental buisiness. Certainly worth confirming tho given the consequences of gettign it wrong.

I agree that a lender would be unlikely to issue a certificate on a portion of a mortgage hence my advise to make sure at the begining. :thumb:


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## APK (Oct 6, 2008)

I think you need to speak to your accountant, I can't find the exact reference, but this one: http://www.hmrc.gov.uk/manuals/remanual/re420.htm states "If a 'mixed loan' is taken out, only the 'qualifying part' of the loan qualifies for relief (ITA07/S386). Any repayments of a mixed loan are apportioned rateably between the qualifying and non-qualifying parts. But note that a different rule applies where capital has been recovered from an investment funded from the qualifying part of the loan. In that case the qualifying part is treated as repaid to the extent of the recovery ( RE425 and RE433). "

If HMRC will accept "apportioned" calculations for some they will accept for this purpose. Unfortunately not all accountants are up to date, and most interpret certain things which they do not come across daily too rigidly, I do agree with you that it would be worth speaking to a good accountant to find out wahat you can and can't claim.


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