From: Ronald Raygun 
Subject: Re: Thoughts on arranging mortgages for own home and BTL.
Newsgroups: uk.finance
Date: Thu, 30 Nov 2006 13:51:34 GMT

nospam@invalid.invalid wrote:

>> house, some is the BTL) and this is offset against the BTL expenses, plus
>> I dont have to take out a BTL loan at a higher interest rate.
> 
> Can you do that then - buy a property you intend to let with your own
> existing mortgage account?

Of course you can.  Whyever not?

> Wouldn't you have to declare at some point that you are using the funds to
> buy another (ie non-primary abode) property - which is something that
> either your mortgage lender may have a problem with (ie they would be
> missing out on screwing you over with a BTL mortage as you've said, at a
> higher rate, so I'm sure it'd be in their T&Cs to prevent you from doing
> so)

No, their main concern is that the loan is secured on a suitable
property.  A property which is occupied by its owner will be more
suitable than one which is occupied by strangers who have no
ownership interest, because the lender knows (well, presumes) that
you will look after it better than tenants.

Doing this kind of thing is perfectly OK, although lenders tend to
limit "any purpose" lending to a certain fraction of the value of the
property on which it is secured (80%, say) and will only lend more if
it's for an approved purpose like improving or extending the home on
which the loan is secured.

It's not very common to borrow *all* that one needs to borrow using
a mortgage secured on another property.  It's more common for an owner
occupier to buy a letting property using a max 80% BTL mortgage and to
borrow the 20% deposit on their home mortgage.

> or which isn't legal in some respect anyway?

Why would it be illegal?  From a tax angle it's fine to count mortgage
loan interest as an expense to be deducted from rental income, even if
the loan is not secured against the rental property, provided the
*purpose* of the loan was to buy the rental property.