Letting my Main Home - Buy to Let Mortgage?

[RegMolehusband]

I moved out of my one and only property last year that has been home for 14 years and I let it to a professional couple. I've moved in to a rented property with my partner.

However the mortgage company has now written to me stating that I must change from my standard residential mortgage to a buy-to-let which clearly is rather more expensive.

Now in my simple mind, this is not a buy-to-let investment or business I'm running here. It just suits my current circumstances.

However I've got a BTL quote from my current lender and have started to shop around for BTL mortgages but my partner thinks I'm too honest, she thinks I should remortgage with somebody else as though it's a standard residential mortgage as I haven't bought-to-let as an investment.

Does anybody have any views or guidance on this point please?

Cheers

"Reg"

[Sarnie]

RegMolehusband said:

I moved out of my one and only property last year that has been home for 14 years and I let it to a professional couple. I've moved in to a rented property with my partner.

However the mortgage company has now written to me stating that I must change from my standard residential mortgage to a buy-to-let which clearly is rather more expensive.

Now in my simple mind, this is not a buy-to-let investment or business I'm running here. It just suits my current circumstances.

However I've got a BTL quote from my current lender and have started to shop around for BTL mortgages but my partner thinks I'm too honest, she thinks I should remortgage with somebody else as though it's a standard residential mortgage as I haven't bought-to-let as an investment.

Does anybody have any views or guidance on this point please?

Cheers

"Reg"

Firstly, what your partner is suggesting is mortgage fraud. To apply for a residential mortgage on the basis that you will be living at the property, with no intention of residing there, is fraud.

Did you inform your lender that you were moving out of the property and renting it out? Did they give you 'Consent to Lease'?

It's perfectly reasonable for them to want to change the mortgage to a BTL as this is what it now is. The fact that you didn't buy it as an investment or are not running it as a business is irrelevant.

[Eric Mc]

The problem is the use of the term "Buy to Let".

Not every rented out property in the land started out as a "Buy to let". Many properties were initially purchased as main residences and subsequently become Rental Peroperties (the term I prefer) due to changed circumstances of the original purchaser of the property.

Once this happens, it is almost always a requirement of the borrower to notify their lender (and their insurers) of the fact that the property is now going to be let out. And both the lenders and insurers are within their rights to amend the mortgage and insurance contracts to suit the different circumstances.

I hope your partner is not intending to give you any tax advice too

[RegMolehusband]

Well this is what I thought really, but I thought I'd ask the question. A BTL mortgage it is then though my current lender (C&G) seems uncompetitive. Moneysupermarket.com have been very helpful so far so it should be sorted this afternoon.

Thanks for your help. And no Eric, I use my accountant for tax advice

[Sarnie]

RegMolehusband said:

Well this is what I thought really, but I thought I'd ask the question. A BTL mortgage it is then though my current lender (C&G) seems uncompetitive. Moneysupermarket.com have been very helpful so far so it should be sorted this afternoon.

Thanks for your help. And no Eric, I use my accountant for tax advice

Beware that most providers have minimum salaries now, some as high as £35k.

Also, quite few will decline your application as you will not have a residential mortgage when the BTL mortgage completes and will be classified as a First Time Landlord/Buyer.

Hope that helps

[Eric Mc]

RegMolehusband said:

Well this is what I thought really, but I thought I'd ask the question. A BTL mortgage it is then though my current lender (C&G) seems uncompetitive. Moneysupermarket.com have been very helpful so far so it should be sorted this afternoon.

Thanks for your help. And no Eric, I use my accountant for tax advice

And quite right too. You can sleep better with an accountant.

[cayman-black]

Do not get a BTL and dont tell them. Its been alright for me for ten years.

[cayman-black]

Yes all the fear mongers here on PH!

[Eric Mc]

cayman-black said:

Do not get a BTL and dont tell them. Its been alright for me for ten years.

I presume you've told the tax man too?

[whoami]

Eric Mc said:

cayman-black said:

Do not get a BTL and dont tell them. Its been alright for me for ten years.

I presume you've told the tax man too?

[RegMolehusband]

OK, I'll ask then. Why would it be of interest to the tax man?

[Sarnie]

RegMolehusband said:

OK, I'll ask then. Why would it be of interest to the tax man?

Any profit you make in rent is subject to Income Tax

[Eric Mc]

RegMolehusband said:

OK, I'll ask then. Why would it be of interest to the tax man?

Point number one - it is a legal requirement to notify HMRC that you have started to let property. You have three months to do this from commencement of the period of let. If you fail to notify within that period you will be fined £100.

Point number two - depending on the levels of rent you are charging and your allowable rental costs, you may have a profit arising on the rental activity. This profit will be subject to Income Tax and you will need to submit a Self Assessment tax return in order to notify HMRC of your rental income, expenditure and profit arising.

Point number two - not all rental properties generate a profit. If the property generates a loss, the figures are still required to be submitted to HMRC. This is actually a good thing because losses generated on the property can be offset against future rental profits if and when they arise. By logging the loss(es) at HMRC through the submission of a Self Assessment return you are essentially ensuring you will get your correct loss relief if and when you need to claim that loss relief.

Point number three - once a property stops being your main residence, it will be subject to the submission of Capital Gains Tax computations through the Self Assessment system if and when the property is finally sold or disposed of. This does not necessarily mean that any Capital Gains Tax is actually payable as there are quite a few (and quite generous) reliefs on properties that are

a) rented out

b) a former main residence of the owner

But the disposal has to be declared in the appropriate Self Assessment return

[RegMolehusband]

Thank you for putting your time into that Eric but I do understand the tax return implications.

The question remains why would HMRC be interested in the type of mortgage taken out on the property?

[anonymous-user]

Mortgage fraud and tax evasion...nice combination.

Remember that ignorance of the rules is no defence. Take the risk if you think it's worth it but you'll be forever waiting for that fateful brown envelope, what price sleeping at night.

Nothing personal, but I hope they all get caught, lose their homes and suffer, sick of paying my dues only to watch smug gits bragging about about not paying tax.

[RegMolehusband]

Where did you pop up from and what the hell has tax evasion got to do with this thread?

I don't know how this got side-tracked into declaring rental income which I would always do.

This is about BTL mortgage or not.

I will be going for a BTL mortgage thanks to the clarification from others.

Edited by RegMolehusband on Tuesday 22 May 08:17

[Fatman2]

RegMolehusband said:

Thank you for putting your time into that Eric but I do understand the tax return implications.

Then I guess the next natural question is; why are you even asking for advice on what you should do?

If you understand the tax implications then you know the situation you're in and also understand that your contract with the mortgage provider is effectively in breach. Also any insurance is probably void so you're at risk of being stiffed thrice.

For sure you can get away with it, like the chap above, but is that something you really want hanging over your head? It's not scaremongering but just playing by the rules.

Once you're playing the game properly then you're well within your rights to consult/pay an expert like Eric to try and minimise your tax burden. However, this will be 100% legal and you won't have to worry about HMRC knocking on your door asking for the last 10 years of unpaid tax.

Sadly we all have to make a choice about taking the hit with a BTL. I've just re-mortgaged my home on a BTL and went from a comfy 2.5% offset to a 3.99% fixed. Noone wants to pay more but I'd rather do everything above board. It maybe just me but I'd sleep a whole lot easier every night too.

[RegMolehusband]

And I agree totally.

[Sarnie]

RegMolehusband said:

Where did you pop up from and what the hell has tax evasion got to do with this thread?

I don't know how this got side-tracked into declaring rental income which I would always do.

This is about BTL mortgage or not.

I will be going for a BTL mortgage thanks to the clarification from others.

Edited by RegMolehusband on Tuesday 22 May 08:17

I think it was more aimed at the guy above who claimed to have not told his lender for ten years that he is renting out the property. And as per Eric's comment, is unlikely to have informed HMRC of the situation either.......

[Eric Mc]

RegMolehusband said:

Thank you for putting your time into that Eric but I do understand the tax return implications.

The question remains why would HMRC be interested in the type of mortgage taken out on the property?

They are not SPECIFICALLY interested in the mortgage per se but you do need to be aware that you CAN reclaim the interest on the mortgage taken out to buy the property. If you use the property as collateral to borrow more money, you can only reclaim the interest on the extra borrowing if the additional loan was taken out to fund work (either enhancement or repairs) on the let property.
If the additional loan was for some other purpose, such as buying a car or funding a holiday, then that extra interest is not claimable.