movingbacktoaus Posted August 26, 2012 Share Posted August 26, 2012 We are looking to move to Australia in about 10 months time and the plan is to keep our current house in the UK and rent it out until we feel ready to buy in Aus. Our mortgage is now up for renewal and was wondering whether we should go for a repayment mortgage or interest only mortgage. If we go with the repayment mortgage our payment will be approx £850 a month and the interest only will be about £420 a month. Benefits of the interest only is that it will help boost our savings for the next 10 months and also the rent we would get would more than cover this plus also ensure we have enough to cover repairs and maintenance etc. How will be affected by tax if we take out a interest only mortgage vs a repayment mortgage? Also not sure whether we would pay UK tax or Australian tax on the UK rental. Any advice would be much appreciated. Quote Link to comment Share on other sites More sharing options...
Guest Shell15 Posted August 26, 2012 Share Posted August 26, 2012 (edited) Cant answer the tax questions but as for an interest only mortgage, if you have no plans on moving back into the property in the long term and it is for investment purposesonly, than i would, well we have actually.. We are yet to find out the tax implications, but will be interested to find out as well. We were only discussing this today.. Edited August 26, 2012 by Shell15 Quote Link to comment Share on other sites More sharing options...
PityTheFool Posted August 26, 2012 Share Posted August 26, 2012 if its only short term id go interest only, however you may need to do a buy-to-let depending on whether the lender will allow you to 'let' the property?!? Quote Link to comment Share on other sites More sharing options...
Cal2 Posted August 27, 2012 Share Posted August 27, 2012 we've choosen the same option as Shelley, not plans to go back though Cal Quote Link to comment Share on other sites More sharing options...
movingbacktoaus Posted August 27, 2012 Author Share Posted August 27, 2012 We have no intention of returning to the UK either. Not sure how long we would want to hold onto our UK property though. We will eventually need to sell it if we want to buy a house in Australia as the equity available would greatly reduce our mortgage size. So is there any actual difference with regards to tax depending on the mortgage type? Quote Link to comment Share on other sites More sharing options...
Alaska Posted August 27, 2012 Share Posted August 27, 2012 Your interest on a mortgage is tax deductable on your tax returns in the UK if that helps. The capital isn't. I believe the following is the case but hopefully someone will confirm the details: If you are on a 457 then you don't need to declare UK income on your Oz tax return, but if on a PR visa you do. Even if you declare it though, there is an agreement with Australia and the UK so you won't pay tax twice. Quote Link to comment Share on other sites More sharing options...
Rupert Posted August 27, 2012 Share Posted August 27, 2012 We are looking to move to Australia in about 10 months time and the plan is to keep our current house in the UK and rent it out until we feel ready to buy in Aus. Our mortgage is now up for renewal and was wondering whether we should go for a repayment mortgage or interest only mortgage. If we go with the repayment mortgage our payment will be approx £850 a month and the interest only will be about £420 a month. Benefits of the interest only is that it will help boost our savings for the next 10 months and also the rent we would get would more than cover this plus also ensure we have enough to cover repairs and maintenance etc. How will be affected by tax if we take out a interest only mortgage vs a repayment mortgage? Also not sure whether we would pay UK tax or Australian tax on the UK rental. Any advice would be much appreciated. Well yes it might seem cheaper on a monthly short term basis. But don't lose sight of the fact that you are not paying down the capital debt and an interest only mortgage does mean you need to make other plans to save / invest to pay off the capital amount in the end. Quote Link to comment Share on other sites More sharing options...
movingbacktoaus Posted August 27, 2012 Author Share Posted August 27, 2012 Thanks all. Our plan for interest only is only short term, probably about 3 years max. If at the end of that period we decide to keep our UK house for longer then we will go back to repayment. The interest only will help us save some extra money in the next year but also allow us to have a bit of a buffer when it comes to renting out. Quote Link to comment Share on other sites More sharing options...
Guest gez09 Posted August 30, 2012 Share Posted August 30, 2012 I suppose it depends on circumstances. You could initially take out the mortgage on a interest only option and then change it a couple years down the line if finances permit. What you should also think about is whether you will be staying in Oz for good otherwise all you are essentially doing is paying 'rent'. What you can think about is perhaps take out the oz mortgage on Interest only and keep your uk mortgage on repayment until you are certain that you will sell up in the uk. Whatever profit you make in the UK can be transfered to Oz to reduce the capital amount outstanding and then change the it to repayment which should be lower than what they are quoting you now. Hope this makes sense and helps. Gez Quote Link to comment Share on other sites More sharing options...
Ken Posted August 30, 2012 Share Posted August 30, 2012 It makes no difference tax wise which option you go for since the only amount you can take as a tax deduction is the interest. On an interest only mortgage that is of course the whole amount (about £420 in the example) and on a repayment mortgage the interest proportion (about £420 of the £850 repayment in the example). On the interest only mortgage the interest will remain the same each month (assuming interest rates don't change) while on the repayment mortgage it will go down each month. You might be thinking therefore the interest only mortgage is better because you'll have a bigger tax deduction in the future - but do remember the tax deduction is only a percentage of the cost. You'll have a bigger cost in the future and that will outweigh the benefit of the tax deduction. Only use an interest only mortgage if you can't afford the repayment mortgage - and preferably not even then as they're a mug's game. Because the source of the income is in the UK that is where you will be taxed first. If you're a permanent resident of Australia you'll be taxed on that income in Australia too but the amount of tax paid in the UK will be deducted from the amount of tax you have to pay in Australia. Quote Link to comment Share on other sites More sharing options...
TechyCAD Posted March 7, 2013 Share Posted March 7, 2013 We sought advice from a mortgage broker about this issue. We moved from UK to Aus end Dec 2012 and had our house on the market but were worried it wouldn't sell in time so were looking at other options. ( we sold in time, by the way, but here's the advice we got). Ok, banks will only allow you to have a buy to let, interest only mortgage/remortgage when you are renting the property out. They won't let you have an ordinary interest only mortgage for renting. You can take out an interest only mortgage without telling the bank you will be renting the property but if they find out they can make you pay off the remainder of the loan immediately. Not a risk worth taking I think you'll agree. The downside of the buy to let interest only mortgage is that they will only give you a mortgage for 75% of the property's value. This is fine if there is plenty of equity in your house but if your property has lost equity or worse still is in negative equity - then not so good. 75% of the equity may not be enough to pay off what you currently owe to your current mortgage lender in order to switch. the other factor is that you need to contact your local authority and get permission to register as a landlord. (Fee involved) and this means you need to get the mandatory electrical, gas and structural safety inspections/certificates done. You will also need to take out landlords insurance to cover the different risks posed to the property by having tenants as opposed to being owner occupied. Sorry to be a prophet of doom but we thought this would be a quick and easy fix to our problem and would also let us hang onto the property until the market picked up again and then maybe get some of our investment back but it just wasn't going to be a viable option for us as our house had lost so much equity, 75% mortgage didn't cut it. Also, too much hassle with bureaucracy etc. thats not to say it won't be a suitable option for you though, so look into it, just make sure you don't jump into anything with your eyes closed. All the best whatever you decide to do. Quote Link to comment Share on other sites More sharing options...
Recommended Posts
Join the conversation
You can post now and register later. If you have an account, sign in now to post with your account.