changing ppr to investment

K

Keed

Guest
I have lived in present ppr (house 1) for 6 years - mortgage cleared.
I have bought a new house (house 2) which will become my ppr in the coming months. The mortgage will be EUR460K.
I then plan to rent out house 1

Is it possible to re-finance house 1 so that I get a mortgage of EUR200K. Then use this EUR200K to reduce the mortgage on house 2.
And get tax rent relief on the EUR200K on house 1 (assuming it's rented)

thanks

keed
 
Its possible to remortgage your current PPR to buy a new one. I'm assuming that you're doing this to raise a deposit or an alternative to a bridging loan if you're planning on paying it off in the short term.
 
I've already agreed a loan of EUR460K with the bank. EUR250 of this is a bridging loan until house 1 is sold and the remainder is a variable rate mortgage. The original idea was to sell house 1 to pay back the bridging and reduce the mortgage on house 2.
I'm just interested in an alternative as it may not be the best time to sell....if I don't sell house 1, can I make it self-financing and qualify for full rent relief (assuming I can rent it out) and still reduce the mortgage on house 2 ?

My idea was to remortgage house 1 for EUR200K. The rent I get would cover the loan repayments and I wouldn't have to pay tax as the rent would just cover the repayments.
Then use this EUR200K to reduce any loans on house 2

Sorry if I am complicating this but is there a way to do what I'm suggesting and is it worthwhile ?

thanks

Keed
 
You can't claim mortgage interest against the rent on the former PPR since the loan will not have been raised in order to purchase the property. Once the mortgage has been cleared, any re-financing will not qualify.

In any case, the fact that the rent would only cover repayments is not relevant, as only the interest element of the payment would be deductible.

From the details posted, you would be better off seeking to increase the mortgage on your new PPR if possible, since the repayments on that will qualify for PPR mortgage interest relief. Or run the numbers again and decide whether it's worth retaining the PPR - you should calculate based on about ten months' rent per annum (to allow a month void and a month's rent on general maintenance / expenses other than tax liability).
 
As Dreamerb says only interest on a loan (or loans) used to purchase/renovate an investment property can be set against rental income from that property (it doesn't matter what asset/property, if any, the loan is secured against). You cannot release equity from a property, use it for something else and then offset the interest against rental income from the property on which the loan is secured. In the case of house 1 above there is no loan outstanding that was used to purchase/renovate this property so there is no loan interest to set against rental income. Also as Dreamerb says the fact that rental income may not be meeting your loan repayments is irrelevant from a tax point of view - e.g. some people seem to assume that if you are making a loss (i.e. mortgage repayments are greater than rental income) then this somehow affects what tax they are liable for: this is a fallacy!

You probably need to get professional tax advice to avoid making any costly mistakes.
 
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