Mortgage question

[nicknav]

Hi all

I'm new to the forum and looking into potentially buying a holiday let on the Isle of Wight.

I haven't done this before, and I'm starting to realise just how much there is to learn/consider! So I expect to be posting quite a few queries on here in the coming weeks/months.

My first question is around how to finance the purchase of the holiday let. I've come to the end of a fixed period on my mortgage for my main residence, and need to switch to another fixed product. I have plenty of equity in my main residence (current LTV less than 20%).

There are 2 options as I see it:
1. remortgage on my main residence and take out all the additional borrowing required to buy the holiday place.
2. remortage on main residence, taking additional borrowing to cover the deposit for holiday place. Then taking a holiday let specific mortgage to cover the remainder of the purchase price of the holiday let.

I'm inclined to go for option 1, as it seems easier to have just one mortgage and also it shouldn't be a problem to get the additional borrowing required. I would probably also benefit from a better rate than option 2.

However, would I be able to offset mortgage interest rate payments against tax for the FHL if I go with option 1?
Are there any other considerations I should take into account?

Any thoughts?
thanks!

[ianh100]

Hi Nicknav

Welcome to LMH, you will find a lot of useful information here.

When we bought our first holiday home we went for option 1 and it was very simple, we got a good rate and the purchase of the property was much simpler.

There is no issue in the mortgage interest as long as you can show that the additional borrowing was used to purchase the new property. I think if you ensure you qualify as an FHL under HMRC rules you can claim the interest at higher rate if you need to. No longer true for buy to let.

We have since remortgaged and had to go through the new mortgage affordability process. This was a complete nightmare and took ages.

[Joanna]

We chose option 2 which worked fine for the first house (12 years ago) and was slightly more onerous for the second house (5 years ago). But, when the introductory deal on the second house came to an end and we went through the process to remortgage it was a right pain - they need so much more information now, especially medical stuff.

If we were starting now and had enough equity we'd definately use our home mortgage and avoid a buy to let mortgage if at all possible. BTW you also have to find a BTL mortgage that is suitable for holiday let's - most of them aren't.

Our accountant takes into account the interest on our home mortgage for the money we used as the deposit so no problem there. Remember it is only the interest that you can claim for and not any repayment.

[Jenster]

We are looking to buy a second FHL and have decided to go with option 1. It seems much easier/more straightforward and as you say there are far more options and better rates. I phoned our current mortgage provider, who has very competitive rates, and got an agreement in principle for a second mortgage against our home to fund the purchase...it was easy as we have a very good ltv as well. We are on a lifetime base rate tracker with an exceptionally good rate for our first mortgage so wanted to leave this well alone rather than lump it in all together. We won't get quite such a good deal for the second mortgage I wouldn't think!

[nicknav]

Thanks for the replies. Yes, I'm thinking option 1 it is - the thing that was making my hestitate was how the mortgage interest could be offset against tax, but sounds like that is do-able.