Mortgage, property, rental TAX advice

erazor51 · 29 Sep 2019 at 08:40

Hi all,

A friend is looking to buy a property for around £500,000.

He is on a 50k salary. He has 150k saving to cover 25% deposit and rest for stamp duty and fees.

Now for the remainder 350k his salary isn’t enough to get that much out from the bank. The only way he can is if he buys a property as a buy to let instead of residential.

Now my question is if he purchases a buy to let house will he be expected to pay tax by inland revenue? There won’t be a rental income as he will be living in it.

Is there a way around this?

Thanks

Salsa · 29 Sep 2019 at 08:44

Your friend can't afford a 500k house and should look at a cheaper one.

Most if not all BTL mortgages require you to be a homeowner already and pretty sure the lender won't give him a BTL on a place he intends to live in.

/Salsa

aardvark · 29 Sep 2019 at 08:47

Salsa said:
Your friend can't afford a 500k house and should look at a cheaper one.

Most if not all BTL mortgages require you to be a homeowner already and pretty sure the lender won't give him a BTL on a place he intends to live in.

/Salsa

+1

erazor51 · 29 Sep 2019 at 08:47

Salsa said:
Your friend can't afford a 500k house and should lool at a cheaper one.

/Salsa

His monthly expense is 1k and saves 2k a month. His 2k is more then enough to cover a 350k mortgage repayments.

Update: His a home owner already with mortgage fully paid. This would be a second home. Current house his going to let his parents stay when he purchases a second home.

VoG · 29 Sep 2019 at 08:50

Well for starters he's commiting fraud buy taking out a btl mortgage for a private residential property, if the bank gets wind of that there will be hell to pay & they would be well within their rights to pull the plug & repossess the property, second surely a btl mortgage would be more costly than a private residential property, & thirdly if thats the only way he can do it then live in landlord is his best bet, & finally he won't get taxed on a non existant rental income tho i suspect the taxman will be asking some damn uncomfortable questions of both him & his bank as to whats what.

aardvark · 29 Sep 2019 at 08:51

oh yeah, its also fraud.

erazor51 · 29 Sep 2019 at 08:59

His a home owner already with mortgage fully paid. This would be a second home. Current house his going to let his parents stay when he purchases a second home.

If he purchases a buy to let house can he then change it to a residential?

lurkio · 29 Sep 2019 at 09:16

well dodgy if caught out

Haggisman · 29 Sep 2019 at 09:24

Why not just tell the bank he earns 100k instead of 50k? Would be easier than going claiming he's going to be renting it out and then he'd only have to worry about lying to the bank instead of the tax man as well

iamdjdz · 29 Sep 2019 at 09:35

Are you able to let it to yourself? So essentially put a direct debit for the rent through from one account to another and back then have a properly protected deposit etc but in your name? Imagine this is sketchy ground though.

Edit yourself being general, in relation to your mate.

Zirax · 29 Sep 2019 at 09:39

Might be worth getting in touch with a mortgage broker.

One option is to release equity from his house that he has paid off. As in a small buy-to-let mortgage on his current place, raising the required amount. His parents then pay some rent. Think even renting to family members is frowned on.

Something else that he REALLY needs to think about...... The uk is in the middle of something called Brexit. At the moment his expenses are tiny and should he be out of work for a while ........ he is fine. Now in my opinion, you have to be nuts to take on more debt and put yourself in a position where you must have a job to survive right now. Also why buy now when property prices are sliding across the board?

Derek W · 29 Sep 2019 at 10:13

erazor51 said:
Now for the remainder 350k his salary isn’t enough to get that much out from the bank.
Thanks

erazor51 said:
His monthly expense is 1k and saves 2k a month. His 2k is more then enough to cover a 350k mortgage repayments.

So which is it? The bank either can lend it to him if he can more than cover the payments or he can't!

A rough calculation on moneysavingexpert gets a monthly 1700+ for the mortgage alone based on a 25yr term leaving him with a shade over 200quid left over from his salary a month outwith his 1k expenses? So that would have him certainly at the top end of his available mortgage limit. Bank would see that as a higher risk I would think.

touch · 29 Sep 2019 at 10:23

Pringle W said:
So which is it? The bank either can lend it to him if he can more than cover the payments or he can't!

It's both.
The bank won't lend him the full amount but if they did, the payments on that amount would be manageable.

dirtychinchilla · 29 Sep 2019 at 10:55

As an alternative, could he look at getting some capital out of his current house to increase the deposit?

peige · 29 Sep 2019 at 11:36

On the tax issue, I believe they would only want tax on what you received as an income from being a landlord, if nothing is received then nothing is due.

BDEE · 29 Sep 2019 at 11:39

peige said:
On the tax issue, I believe they would only want tax on what you received as an income from being a landlord, if nothing is received then nothing is due.

Apart from the SDLT with additional 3% surcharge for it being a second property of course, amounting to some £30,000 in this instance.

Skillmister · 29 Sep 2019 at 14:27

BDEE said:
Apart from the SDLT with additional 3% surcharge for it being a second property of course, amounting to some £30,000 in this instance.

He'll be paying that whether it's buy to live in or btl though

Shoza · 29 Sep 2019 at 14:39

£50k salary isn’t enough to support a £350k mortgage. That’s what a mortgage broker will tell him.

Buy somewhere cheaper.

sja360 · 29 Sep 2019 at 15:16

Even when I earned 65k max I could get is 325, that's after having a mortgage on a flat prior.
I think he's best to not bother looking at 500k properties, is their nothing around 300-400k?

b0rn2sk8 · 29 Sep 2019 at 15:24

I think everyone is missing one side of this one.

The OP said their parents would be taking the current house and paying rent. This additional income could be taken into account for mortgage purposes but it is also taxable (at the higher rate) so you need to take into account losing 40% of that.