Renting out Primary Residence and Building for ourselves - interest only

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craggel

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Howdy!
Myself and the good lady are living in Dublin at the moment, however Mrs Craggel is unsettled and wants to move closer to her home place down the bog. We have managed to get ourselves a site and are going for planning shortly. We have had a planning meeting with the council and all looks good from that perspective.
However the financial side of it is causing some concern. We (should I say I) are looking to hold on to our House in Dublin for a number of reasons, one incase things don't work out in the country etc. so that we can move back without any hassle and two because the house prices at the moment aren't very good especially in the area we are living for some reason.
We have had a mortgage approved through a broker who is a family friend which will allow us to remortgage our own house and provide a new mortgage for the self build also. Both mortgages are however going to be interest only. Now I have a fair idea how this works but my concern is that my primary residence(ie the self build) is going to be interest only and in effect will never be paid off in full. The pay back on the mortgages is such that when we rent our own house the rent we should get will pay off more than half what both mortgages cost every month leaving us to pay off less than we are paying now against our present mortgage.
I haven't gone into the tax side of things fully yet although I do know there will be issues etc to do with rental income being taxable and CGT.
My main concern is with both properties being interest only. Can anyone throw some light on pros or cons relating to such a deal? Any help would be much appreciated.
ps We paid stamp duty on the house when we bought it so no claw back issues.

Thanks
Craggel
 
craggel said:
The pay back on the mortgages is such that when we rent our own house the rent we should get will pay off more than half what both mortgages cost every month leaving us to pay off less than we are paying now against our present mortgage.
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But you will not be paying off any capital on either property so you will still have to find a way to do this when the time comes (e.g. the term runs out or you want to sell). Also - probably a relatively small issue in the greater scheme of things here - you will have to have level term mortgage protection life assurance for the PPR since the capital owed will not be reducing and this will be more expensive than decreasing term cover. How do you intend paying off the mortgage on each property?
ps We paid stamp duty on the house when we bought it so no claw back issues.
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Not necessarily - you could have paid SD at a rate below what an investor would have paid in which case the clawback would apply.

Have you sought independent, professional advice - and I don't mean from the broker in question here?
 
Thanks for the prompt reply Clubman.

But you will not be paying off any capital on either property so you will still have to find a way to do this when the time comes (e.g. the term runs out or you want to sell). Also - probably a relatively small issue in the greater scheme of things here - you will have to have level term mortgage protection life assurance for the PPR since the capital owed will not be reducing and this will be more expensive than decreasing term cover. How do you intend paying off the mortgage on each property?

This is my concern. The answer I suppose would be to sell the house in Dublin in a few years when all are settled in the new house/ area which should cover most of the capital borrowed for both properties. Or if we move back then sell on the newly built house which should get us enough to cover both. Either way assuming the housing market doesn't go belly up we should be able to sell one house and leave smaller mortgage than now....or am I missing something????

Not necessarily - you could have paid SD at a rate below what an investor would have paid in which case the clawback would apply.

OK. Not sure if there was a higher rate in 1999 for investors when we
purchased but if there was what does this then mean. we pay the difference on values back then? Or values now??
 
craggel said:
The answer I suppose would be to sell the house in Dublin in a few years when all are settled in the new house/ area which should cover most of the capital borrowed for both properties. Or if we move back then sell on the newly built house which should get us enough to cover both.
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That's a huge assumption surely?! :eek:
OK. Not sure if there was a higher rate in 1999 for investors when we
purchased but if there was what does this then mean. we pay the difference on values back then? Or values now??
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If the SD clawback applies then you owe the difference between what you paid and what an investor would have paid at the time of the purchase.
 
If you purchased the property over 5 years ago, the stamp duty clawback is not relevent.
 
Thanks for the replies so far.

Yes it is a huge assumption but it's all ifs and buts at this stage as I'm trying to work things out for the best. I won't be diving into this blindly and I will obviously go down the road of getting some professional advice but thought I'd throw it out here initially as you guys are way more clued in on these matters than I.

Any advice on independant advisors in the Dublin area?
 
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