Advice on getting mortgage for new PPR by splitting in two.

R

roytheboyo

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Please consider the following and advise:
Current house is in wifes name, mortgage cleared, value approx 150k, in very rentable area.
Couple want mortgage for new house as follows:

New mortgage on existing house say 100k (so that 75% of interest can be used to reduce tax on rental income)
New mortgage on new house of 200k (total purchase price 300k).

Feedback from bank is that they will allow mortgage of 300k no problem (our combined gross income is 130k approx), but not split into two mortgages.

I cant understand why they wont split it because:
If they allowed it as 2 mortgages it would save some tax being paid
They would have security against two houses.

Their position is that they not allow an 'equity release' mortgage (i thought it would be a straightforward new mortgage on a house) unless it is for upgrades, extension etc.

Im wondering can i get a mortgage to buy house from my wife?

I just cant understand what logic is in the banks decision, am i missing something.
Please add ideas, suggestions, discuss etc.
 
A loan on the existing property that is used to buy a PPR is not a loan to acquire property for rental so the interest is not allowed against rental income.

A loan on your new property would be better for you as it would let you sell the second property without refer to the bank.
 
Doesn't matter tax wise whether they split it or not, you cannot get tax relief on the loan you take out on the existing property which you intend to rent but use the money for the new house as the money is not being used for the rented property.

It is an equity release on the existing house and if their policy at the moment is not to do that for anything other than the reasons they gave then that is their policy, maybe another bank will do it. However I can't see that it is to your benefit, you are better off having the full mortgage on the new house at home loan rates than taking out a third of it at investment rates I would think.
 
The best thing to do is purchase the house with a 300K mortgage. Then you sell the current property. With the proceeds of that you might decide to reduce your 300K mortgage or purchase something else as an investment, with a mortgage to get the tax relief etc. You'll need a very good yield for this to make sense. Alternatively you might want to invest the 150K in shares, in a deposit, a pension or whatever makes sense for you.
 
Thanks for replies,
Should i get mortgage to buy house from wife to get tax relief? Is that possible?
Roy
 
Revenue are aware that people were trying to manipulate the system so brought in a specific section to disallow interest where one spouse purchases property from another.

Para 5 [broken link removed]
 
Thanks again,
Thanks again. Dont want to sell as house is in rentable area and i feel it should pay us back a bit after the crazy money we paid for it.
I realise now that i should not have paid off this mortgage, i am sickened at the thought of having to pay tax prsi etc on rental income because i can write off 75% interest against rental income
I still dont understand why bank will give full mortgage amount but wont split it in 2, thereby having security over 2 housea and making it more tax efficient for me. mad.
 
How is it more tax efficient for you? You cannot claim the interest on that new borrowing against the rental income.

The bank are not looking at the security side, they have said it is not policy to do an equity release so that is why they are not doing it, the policy decision is superseding any other lending decision in this case.
 
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