Soldato
If the parents have enough to gift the friend in order to top up the deposit then that could work too, but they'd probably need to gift him around £100K.
Mortgage, property, rental TAX advice
- Thread starter erazor51
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Soldato
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If it's declared. I'm confused as to why a btl mortgage is an issue if you live there. I've never done it before, but I thought that typically it's a higher interest rate anyway, so regardless of who is living in the house, you would be paying a higher mortgage rate?
Soldato
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Can be confused but theyre right. It's more to do around the legal side of it I think. Home owners get different protections than those buying to make a business our of it (BTL), among other things.
Fact is really that he can't really afford it . It's not really about getting as much from the bank as possible but whether he can afford it in the first place. Stuff like this is a reason why the banks got into problems in the first place - lending easily to anyone, and too much.
Simply put, you're not allowed to rent out a property on a residential mortgage without permission ,and that is usually temporary. Likewise, BTL terms are that you cannot live in the property. Mortgage lenders will check on this too. They find out the person lied (which would be fraud) they could ask for the loan amount to be repaid. Cant do that? Repossession.....
Banks will look at the rental potential as part of the decision making. Going to live in it = £0 rent which = not a viable business.
if parents are renting other house then he would be liable for tax on that property, and possibly CGT when sold. There's no sayign "if it's declared" as it would be tax avoidance. Banks will see it as owning two BTL properties which they might not like either (where do they live???).
Another option could be to put a BTL mortgage on the property being let to parents and then using the amount raised as further deposit on the new place to bring the mortgage required down to buy it as a residential property. Assuming he could raise £150k, that'd be £300k deposit and £200k residential mortgage. However, he'd now have two mortgages to service instead of one.
People moan about the banks but here's a case of a friend of OP considering bank fraud with tax avoidance too
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If the existing house has enough capital in it then remortgage the current house as a BTL and use the capital to pay a bigger deposit on the new one to make it affordable.
Just keep in mind that all income from the BTL is taxable and and you've got increased stamp duty on the second home which will both massively eat into the affordability calculations.
Failing that, sell the existing house to the parents.
I wouldn't outright say he can't afford the £500k house, he just can't afford it while keeping the first one.
Just keep in mind that all income from the BTL is taxable and and you've got increased stamp duty on the second home which will both massively eat into the affordability calculations.
Failing that, sell the existing house to the parents.
I wouldn't outright say he can't afford the £500k house, he just can't afford it while keeping the first one.
Caporegime
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is he or you aware of the extra 3% in SDLT on a second home?
so that would be £15K on top of whatever he would pay on a £500K home.
have you accounted for this additional £15K in fees?
Caporegime
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i don't think OP or "his friend" which is likely the OP realises when you buy a £500K home your expenses also rise.
does he think heating a £500K home will be the same as a £150K home?
also maintenance? council tax, electricity, factor fees all go up.
basically "his friend" cannot afford the home. lying to the bank is the worst thing he could do. also he would likely lose the home soon after buying it due to him not being able to afford it.
Caporegime
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unless he sells his old house.
so where is this £150K deposit coming from?
are his parents selling a home and gifting him the money?
Soldato
Try reading the thread before jumping to pick holes in posts
Caporegime
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I did read. It's just very unusual for someone to be living in a £150K home and have £150K in savings. I'm guessing that money has just been given to him.
No one said anything about living in a 150k home. 150k is saving. This saving is from salary, gift, selling stock and shares I believe.
From 150k he will use 120k for deposit and 30k for stamp duty and fees.
500k is max budget for a new house, does not mean he will buy it exactly for 500k it could be from 450-500, depending on what he finds.
The house he lives in is valued at £1.2million, bought back in the 60s for around 20k in central London. The house was gifted to him.
His parents will move in there as all his siblings leave around 15 mins from that location and also shops, doctors, hospitals are all walking distance. Perfect for old age parents and for all the siblings to come and check on them regularly.
Parents will not be paying any rent. Also he does not want to take out a mortgage from that house. I don’t know why but thats all I know.
From his salary he only spends 1k which covers all expenses, gas, electric, broadband, food etc. He saves 2k every month.
The reason he is able to only spend 1k on all expenses is because his travel, food and mobile bill is all paid for by work.
He doesn’t mind paying the extra interest rate for BTL mortgage as he will have 2k available to pay every month. I also believe he wants to do interest only so as he wants to save every year and pay lump sum and also be in control how much he pays.
He just wants to know if the banks are getting their money every month and his happy to pay and also afford it, will inland revenue chase up on a BTL mortgage for taxes to be paid? If there is a link then obviously he won’t be able to pay any tax as there is no rent. If inland revenue don’t look into stuff like this and you as a home owner are the one who needs to process everything and declare it then I believe he will be able to get a BTL mortgage and pay monthly for it as the banks are getting their month back.
Does all this make sense?
Thanks all.
From 150k he will use 120k for deposit and 30k for stamp duty and fees.
500k is max budget for a new house, does not mean he will buy it exactly for 500k it could be from 450-500, depending on what he finds.
The house he lives in is valued at £1.2million, bought back in the 60s for around 20k in central London. The house was gifted to him.
His parents will move in there as all his siblings leave around 15 mins from that location and also shops, doctors, hospitals are all walking distance. Perfect for old age parents and for all the siblings to come and check on them regularly.
Parents will not be paying any rent. Also he does not want to take out a mortgage from that house. I don’t know why but thats all I know.
From his salary he only spends 1k which covers all expenses, gas, electric, broadband, food etc. He saves 2k every month.
The reason he is able to only spend 1k on all expenses is because his travel, food and mobile bill is all paid for by work.
He doesn’t mind paying the extra interest rate for BTL mortgage as he will have 2k available to pay every month. I also believe he wants to do interest only so as he wants to save every year and pay lump sum and also be in control how much he pays.
He just wants to know if the banks are getting their money every month and his happy to pay and also afford it, will inland revenue chase up on a BTL mortgage for taxes to be paid? If there is a link then obviously he won’t be able to pay any tax as there is no rent. If inland revenue don’t look into stuff like this and you as a home owner are the one who needs to process everything and declare it then I believe he will be able to get a BTL mortgage and pay monthly for it as the banks are getting their month back.
Does all this make sense?
Thanks all.
Soldato
Has he had an appointment with a mortgage adviser? Instead of asking random people on the internet it's probably best to ask a professional.
Caporegime
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So he wants to commit mortgage fraud?
He wants to take out a buy to let mortgage with no intention of letting it out?
I say good luck with that.
BTL is the only option as banks won't give out a 350k residential mortgage with a 50k salary even if you can afford it.
The Banks get their money and make money on top, everyone's happy, why is it a problem? If it is mortgage fraud then it won't be something he can do then. I believe he has an appointment with a mortgage advisor so will see what they come back with.
Soldato
The IR will not know specifically he has a BTL mortgage, they wouldn't care. He will need to account for BTL income on self assessment. If they didn't believe him they would trigger an investigation, and whilst that would be a pain he wouldn't have too much to worry about with the IR. Assuming he does in fact account correctly for all his income.
The building society is his issue, if he can only gain a mortgage via it being a BTL then he will need to support the calculations, and when he starts making stuff up at this point hes committing fraud.
Hes asset rich, but cash poor by the sounds of it. What people do in this scenario is mortgage the assets to generate cash.
Hes probably far better off taking £350k or so against the old house, it would still be low LTV. Using that to buy outright the new house.Let the parents stay in the old one for free if he wants, and he uses his income to pay the mortgage on the other one.
Wanting it to be interest only just helps to ratchet up his restriction since most residential lending now wont do this, so hes almost being forced to go BTL since these typically are interest only, and my suspicion is this interest only thing is the main resaon for the complexities.
The building society is his issue, if he can only gain a mortgage via it being a BTL then he will need to support the calculations, and when he starts making stuff up at this point hes committing fraud.
Hes asset rich, but cash poor by the sounds of it. What people do in this scenario is mortgage the assets to generate cash.
Hes probably far better off taking £350k or so against the old house, it would still be low LTV. Using that to buy outright the new house.Let the parents stay in the old one for free if he wants, and he uses his income to pay the mortgage on the other one.
Wanting it to be interest only just helps to ratchet up his restriction since most residential lending now wont do this, so hes almost being forced to go BTL since these typically are interest only, and my suspicion is this interest only thing is the main resaon for the complexities.
It makes sense in theory, but he really needs to speak to an IFA or broker.
They'll likely tell him to use his current house as collateral when purchasing his new house.
At the end of the day, based on his current salary/savings, he'll be deemed a high risk on a ~500k house, throw in the ownership of the current existing property and i'd imagine he wouldn't even need to go through the faff of trying to get a BTL mortgage to live in himself, as the banks will see a a large asset that they can leverage on in the event things go belly up with his new house.
Caporegime
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All it takes is a credit check to flag up he has a BTL mortgage. Something most people in that business/sector have access to.
Re-mortgage the old property and buy outright is the smartest option.
Re-mortgage the old property and buy outright is the smartest option.
who knows, maybe possibly. It depends on if a deal is reached and on what terms. - Too many variables to say.
Caporegime
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It means the flood gates will open to Asian immigration. So more crazy rich asians moving to London. I expect house prices in London to keep on rising due to a tendency of money to flow there naturally.
If most people are saying they will drop it's likely they won't.
Same with interest rates. Everyone said they would go up 3 years ago. They went down then went to where they were before. So it never happened.