Record a mortgage for a property

This article explains how to add a mortgage liability and deal with the repayments in an unincorporated landlord account in FreeAgent.

1. Add a new property

If the mortgage is for a new property, you’ll first need to add the new property in FreeAgent. If the mortgage is for an existing property, you can skip to adding a new liability category.

Enter the property address in the ‘Address’ field. Please note that the first line of the address will be used as the property’s name in FreeAgent. You can also enter the town, region and postcode if you wish.

Select ‘Create new property’. You can also add a property using the FreeAgent mobile app.

2. Add a new liability category

Once you’ve added the property, you’ll need to add a new liability category in FreeAgent for the mortgage.

Enter a name for the category in the ‘Description’ field, choose a nominal code number for it and choose where the category should be reported on your Income Tax return from the ‘Reporting Type’ drop-down menu.

If you’re unsure which box the category should appear in, please ask your accountant.

Select ‘Create Category’.

3. Add the initial mortgage liability

After you’ve created a liability category for the mortgage, you’ll need to add the initial liability for the mortgage.

If the mortgage is for a new property, you’ll need to explain the property purchase. If the mortgage is for an existing property, you’ll need to add an opening balance for the new liability category instead.

Explaining the property purchase (new property)

If the mortgage is for a new property, you’ll need to explain the property purchase as a purchase of a capital asset by adding two manual bank transactions.

For the first transaction, select ‘Purchase of Capital Asset’ from the ‘Type’ drop-down menu, enter the date of the purchase and the value.

Then, select ‘Land and Property Purchase’ from the ‘Asset Type’ drop-down menu, enter a description and select ‘Create and Add Another’.

For the second transaction, select ‘Other Money In’ from the ‘Type’ drop-down menu, enter the date of the purchase and the value.

Then, select the liability category you created from the ‘Category’ drop-down menu, enter a description and select ‘Create and Finish’.

You can then skip to explaining the mortgage repayments.

Adding an opening balance to the liability category (existing property)

If the mortgage is for an existing property, you’ll need to edit your opening balances in FreeAgent to add an opening balance for the amount that is outstanding for the mortgage.

Add the outstanding amount as a credit entry to the liability category you created and select ‘Save Changes’.

4. Explain the mortgage repayments

Finally, you’ll need to explain the bank transactions associated with the mortgage that are paid out of your business bank account.

To do this, you'll need to split the bank transaction between the amount of interest and the capital repayment.

Split the bank transaction

Click on the transaction, select ‘Adjustments’ in the bottom-right corner and choose 'Split transaction' from the drop-down menu.

Allocate the amount of interest

To allocate the interest, select ‘Payment’ from the ‘Type’ drop-down menu and enter the amount of interest in the ‘Value’ field.

Then, select ‘Residential Interest Payable’ from the ‘Category’ drop-down menu, choose which property the mortgage relates to from the ‘Property’ drop-down menu and enter a description.

Select ‘Save and add another’.

Allocate the capital repayment

To allocate the capital repayment, select ‘Other Money Out’ from the ‘Type’ drop-down menu and enter the capital repayment amount in the ‘Value’ field.

Then, select the liability category you created from the ‘Category’ drop-down menu and enter a description.

Select ‘Save and finish’ to complete the process.

The bank transaction will then be split between the interest and capital repayment.

Repeat these steps for each repayment until the mortgage is paid off.