Investment 0 mtg, PPR big mortgage

Hi All,
Please consider the following:
House 1, bought 2007, 350k, mortgage paid off fully, rented @1100/month.
House 2, Bought 2015, mortgage 350k, PPR, 4.2% variable.
As i have no mortgage interest to write off on house 1, i will get creamed on the tax on the rent. For this reason i will probably sell house 1, even though i dont want to. Is there any way i can use house 1 to get a mtg (say 100k) and write the interest off against tax on the rent?, or is there anything else i can do.
The 13K rent barely pays for the 300k @ 4% that i would realise by selling.
Any help appreciated.

1. Can you move into house 1 and rent out house 2? Presume not or you would have considered this.
2. Sell house 1 and use the proceeds to pay down house 2. How much of a loss could arise vs the original buy cost of 350k - 50k right? You need to take a view on this.
3. Re buy an equivalent rental house using a new mortgage. (Though given the rental numbers you quote wouldn't even dream of this as it would be a significant loss making investment)
4. Are you working, have you a pension? Consider AVC's with the money that you now don't need to pay off your own PPR mortgage. Take advice though and invest wisely, properly diversifying.

Enjoy life as no longer a landlord and subsidising a rental property!

1.We want to live in house 2
2.Thats exactly what I am thinking of doing as rent after tax is not worth it
3. Could do, at least 75% interest write off
4. Am working, have pension.
The issue for me is the tax on the rental income. As no mortgage I'm getting creamed for tax.

I never really understand the concept behind wanting borrowings to reduce tax, you have to pay interest to get back tax at a much lower rate than you paid. For ordinary mortgage interest relief for example a person has to pay a €1 in interest to get back .20c, why would anyone do that by choice? Would I give away a €1 to someone for .20 in return! Is there something different on the investment property side that makes it actually profitable?

Monbretia said:

I never really understand the concept behind wanting borrowings to reduce tax, you have to pay interest to get back tax at a much lower rate than you paid. For ordinary mortgage interest relief for example a person has to pay a €1 in interest to get back .20c, why would anyone do that by choice? Would I give away a €1 to someone for .20 in return! Is there something different on the investment property side that makes it actually profitable?

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Agree 100%, makes no sense to borrow and pay interest costs only to get some of that cost back in the form of lower tax. That applies when there are no borrowings, agree wouldn't make sense (usually) to borrow.

However, the question posed here by the OP concerns a situation where there are borrowings, except on the PPR not the rental property. If the borrowings could be 'switched' to the rental property then that would be a better outcome (though not possible to switch them of course). A second related issue is whether the rental property is a good investment at all, my view is that it is not based on the numbers provided.

Seems like a no brainer to me actually, sell the rental property and use the net proceeds to pay down the PPR mortgage. Doesn't appear that the loss (vs original cost) on the rental property is a major issue given the circumstances. Though this approach does require strong discipline so that money saved by not needing to pay the PPR mortgage is wisely invested (pensions, AVC, other?) and does not simply become part of day to day spending.

But you can't switch them though can you? Even if you borrowed against the BTL and paid off the PPR it's the use of the money that determines tax relief not the actual property the loan is on? Wouldn't the money borrowed have to be used either on the BTL or to purchase another BTL, either way it couldn't be used to pay off the PPR and still get tax relief on it or am I wrong?

Absolutely correct. Can't switch them. Its the use of the money as you say.

One could sell the rental property, use the proceeds to pay the PPR and then buy a new rental property with a new mortgage (which interest would then be allowed). Though as an investment proposition this does not make sense (the rental would hardly cover the interest cost never mind other running costs, etc).

Could I buy the rental house from my wife (it's in her name - pre marriage), and write the interest on this mtg off against the rental income?

No, interest on residential property acquired from a spouse is not allowed.

Op here, could I gift the investment property to my child (5 yrs old) so they get the rental income and use their tax free allowance? Just a thought.