Taking out mortgage against rental property for tax reasons

A

Ashcaf

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Apologies in advance if I’m asking some stupid questions here.

My situation is myself and my husband own a house worth around 200-210k. There is no mortgage on this house and we have it rented out with great tenants in place.

Our PPR is a house with a mortgage of around 190k and worth around 250k. We’re coming to the end of a 3 year fixed term and we’ll be looking around at what our options are in terms of getting a better rate soon.

My question really is: would we be better off having the mortgage on our rental property rather than our PPR as we could then claim mortgage interest as an expense against our tax? Is this something a bank is likely to consider? Would higher interest rates on BTL mortgages wipe out any savings we might make?

Again, sorry if these are all stupid questions. Would appreciate any advice.
 
Ashcaf said:
My question really is: would we be better off having the mortgage on our rental property rather than our PPR as we could then claim mortgage interest as an expense against our tax? Is this something a bank is likely to consider? Would higher interest rates on BTL mortgages wipe out any savings we might make?
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No you couldn't, sorry.

The proceeds of the loan have to be spent on the purchase, construction, extension, refurbishment etc of the property, otherwise the interest doesn't qualify for tax deduction.
 
T McGibney said:
No you couldn't, sorry.

The proceeds of the loan have to be spent on the purchase, construction, extension, refurbishment etc of the property, otherwise the interest doesn't qualify for tax deduction.
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When you put it like that, it makes so much sense I'm annoyed I didn't see it myself! :)


Thanks!
 
A re-mortgage isn't seen as a purchase? What's the difference if you sold it, cleared ppr mortgage with proceeds, bought new apartment with a new mortgage? Obviously more messy and long winded.
 
thos said:
A re-mortgage isn't seen as a purchase? What's the difference if you sold it, cleared ppr mortgage with proceeds, bought new apartment with a new mortgage? Obviously more messy and long winded.
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That would work. She could also move into the rental and let out the PPR.

OP didn't ask whether it's a good idea to keep the rental or not. No figures supplied.
 
Thanks all. We're happy in our PPR and keeping the rental as it is. We have great tenants and we're happy enough with our current situation. There are probably ways we could rearrange things like selling the rental, buying a new rental, etc, that might make more financial sense, but we're not really looking to do anything too drastic. I was just wondering if there was something relatively hassle free (never thought I'd call taking out a mortgage hassle free!) to improve our tax situation. I'm almost relieved to hear we can't. Sounds like a lot less trouble!
 
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