Renting A House Out Question

[RacerMDR]

righto.........I have rented my old flat out........

current economic situation means that my rent is less than my mortgage - therefore i'm out of pocket every month (about 200 quid)

For those financial types - would it be sensible to switch to an Interest Only mortgage to reduce my loss each month?

Or plough on paying off the capital?

I can afford to continue losing the 200 - but as its rented, and i'm just waiting until its out of negative equity to sell it.........

Any one got any thoughts?

Obviously if i keep paying off capital - then i'll be able to sell it quicker

What is the general consensus on this sort of situation?

[soprano]

I know its slightly off topic but have you let your mortgage lender know? If not and you are on a normal residential mortgage you will probably be in breach of your conditions (usually a condition that you live there and dont let it out).

Just thought I would forewarn you before you go telephoning your mortgage co about this...

[ridds]

Are you declaring it as an income too. By the time you pay tax on that as well.......

Even more out of pocket.... ouch.

[eldar]

ridds said:

Are you declaring it as an income too. By the time you pay tax on that as well.......

Even more out of pocket.... ouch.

Oh yes, Mr taxmax is having a clampdown on rental income, Our Gordo needs the money, and its there...

http://www.moneywise.co.uk/news-views/2008/02/22/b...

[JQ]

Also check you're buildings and contents insurance allows you to rent out the property. If your tenant burns down your house and you then discover you're not insured you'll be alot more out of pocket. There are specialist policies which don't cost much more.

The financial decision is completely up to you. If you're ok to keep paying off the capital then it makes sense as you'll be able to sell it quicker. But don't forget you will only get income tax relief on the amount of rent that covers the interest element of the mortgage. So you need to calculate the tax and add it to the £200 to calculate what it's actually costing you. And yes the IR are seriously cracking down on people not declaring income, so if you're not, be warned.

All of this assumes that prices will continue to rise - that's not guaranteed.

[Coco H]

Yes but mortgage interest is tax deductible in this circs - so likely not be a huge tax bill if you are not paying off a huge amount of capital

[Road Pest]

It maybe the case you won't be allowed to switch to interest only anyway. The lenders are a bit funny about it these days. You'll need to demonstrate some sort of repayment plan other than capital appreciation. Lenders like there to be equity before even considering I/O mortgages at the moment. It would be worth asking your lender whether it's an option or not.

[NDA]

What equity do you have in the property?

If it is substantial, then I think you're better off paying interest only (which is low at the moment) and waiting until the property value comes back (along with an increase in interest rates) and selling. The tax situation is also attractive on an interest only mortgage... All of this assumes a healthy equity position.

[RacerMDR]

no equity in the property at all actually - in fact - its a little bit negative (about 8k)

as for tax etc..........hardly going to have to pay tax as its not an income! I'm making a loss every month....!

[RacerMDR]

thanks all _ sometimes I forget what a draconian ridiculous country this is..........

I'll be sure to abide by all of the rules to make sure I give winky mcfknut every last ounce of blood

:-)

[NDA]

RacerMDR said:

no equity in the property at all actually - in fact - its a little bit negative (about 8k)

as for tax etc..........hardly going to have to pay tax as its not an income! I'm making a loss every month....!

There are better minds than mine on here, but it seems two routes...

1. Keep the existing mortgage and keep repaying the capital - but losing cashflow every month.

2. Switch to interest only whilst interest rates are low and hope that the price of the property increases - as soon as it does, sell out.

I wonder if you can switch mortgages at the moment?? I imagine that might be quite tough to do.

[anonymous-user]

Have you had a recent valuation? you might be suprised

there will be no tax liability from what you have said.

Do you own the house you're living in at the moment and is there any equity in that?

[Eric Mc]

There could be a tax liability if the loss is arrived at by deducting the full mortgage repayments. Only the interest element of a mortgage repayment is tax deductable. The capital element of the repayment is not.

[Frankeh]

RacerMDR said:

righto.........I have rented my old flat out........

current economic situation means that my rent is less than my mortgage - therefore i'm out of pocket every month (about 200 quid)

Why aren't you living in the flat at those kinds of losses?
Also, if you are letting your flat out you should be on an interest only BTL mortgage for tax reasons.

[Aranell]

Apologies if this is a really silly question but I'm now confused having read the Moneywise article above and looking around on various websites!

I own a property which I rent out. It is the only property I own as I currently live in a rented property. The rent I get (around £700 pcm) covers the mortgage payments almost exactly so even with agent's fees, I'm about at break even point.

Will I have to pay tax (income tax?) on the rent I get, despite the fact that I'm not actually making any money on the property?

[Frankeh]

Aranell said:

Apologies if this is a really silly question but I'm now confused having read the Moneywise article above and looking around on various websites!

I own a property which I rent out. It is the only property I own as I currently live in a rented property. The rent I get (around £700 pcm) covers the mortgage payments almost exactly so even with agent's fees, I'm about at break even point.

Will I have to pay tax (income tax?) on the rent I get, despite the fact that I'm not actually making any money on the property?

Interest only mortgage, or repayment?

[Aranell]

Frankeh said:

Interest only mortgage, or repayment?

Repayment.

[anonymous-user]

Also make sure you have enough put away for voids, repairs and dilapidations...

[Frankeh]

Aranell said:

Frankeh said:

Interest only mortgage, or repayment?

Repayment.

I believe you must pay tax on the repayment part of that £700.

[Aranell]

Frankeh said:

I believe you must pay tax on the repayment part of that £700.

Thanks, that's what I thought Really sucks as I'm not actually making (or trying to make) any money on the property at all yet I still have to pay income tax on it