Keep equity in rental property low to avoid tax?

E

Easter

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I am considering renting out my PPR for the first time. I had intended to pay a lump sum off the mortgage and overpay the mortgage as proof of ability to pay when seeking a mortgage again to tradeup.

Does it make more sense though to leave equity in the property lower and have more interest to deduct from tax return on rental income?

Also, do I need to inform the bank that I intend renting it out? Currently on a variable rate, will this change to a higher rate of interest if it’s considered an investment property now?
 
You would need to fill in the Money Makeover form to get a fully informed answer.

Are you buying another home to live in?

If you have a mortgage of €200k on a buy to let at 3% and €200k on a PPR at 3%, and you have spare cash, you should pay down the PPR as you don't get tax relief on it.

If you have a mortgage of €200k on a buy to let at 4.5% and a PPR on 1%, it makes sense to pay down the buy to let as the net rate after tax is higher.

Brendan
 
Thanks Brendan. I won’t be buying again until I eventually sell this property. Plan is to move elsewhere rent free and save to tradeup from apartment to house.

I thought it might be better to keep lump sum in savings rather than have a higher tax bill on rental income due to reduced interest. Apologies if that’s a stupid scenario, I can’t get my head around it. Is there anything to gain by keeping equity in the property low here?
 
Say, you are paying about 3.5% interest on your mortgage.
You will get about 50% tax relief on it.
So the net cost to you will be 1.75%

You have your savings on deposit earning about 0%.

So you are borrowing money at 1.75% to put it on deposit at 0%.

Not a good idea at all.

Brendan
 
Easter said:
Also, do I need to inform the bank that I intend renting it out? Currently on a variable rate, will this change to a higher rate of interest if it’s considered an investment property now?
Click to expand...

They might hike the rate if you do. Make sure you inform your insurance company that it a rental.
 
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