Renting out my house instead of selling?

[TheMichelinLady]

I want to move at some point, but it must be in a very specific location and it will take a long time (maybe a couple of years) for the right house to come up there. I don't see how I can put my house on the market with this in mind, so I've been wondering about renting it out instead once I eventually find something. I've tried to do a bit of research but I'm still a bit confused. My main question is, how much would this impact what I can spend on the new house?

My current house is worth £225k
Mortgage is £125k (and the max I can borrow)
I have an additional £100k of savings to add to new deposit so could go up to £325k if I were to sell
My house would rent for approx £850 per month.

Just to add, due to long and boring circumstances that I won't go into, I am totally comfortable having the maximum mortgage I'm allowed.

[Ifailed]

Where would you live whilst renting out your house?

[TheMichelinLady]

@Ifailed I would wait to have an offer accepted, then list my house to rent from a few weeks after competition. Would that work? I don't see how I would work the finances out

[TheMichelinLady]

Completion not competition!

[Pugdoglife]

Personally I wouldn't (and I say that as a landlord, but my circumstances are very different to yours) it seems that you would need a buy to let mortgage for your property and a residential mortgage for your future property. So you will need to consider two lots of fees, interest etc.
With the rental you will have lots of costs such as repair bills, tax, council tax whilst it is empty, estate agents fees to find a tenant and do the relevant checks, accounts fees, all of these quickly eat into your rental takings, so you may not end up with much money. All it takes is a bad tenant who doesn't pay or damages the property and you could find yourself in trouble.

[Mosaic123]

Maybe you could sell your current place and rent something small and cheap while you are waiting for the right house to come up? You'd be a good buyer with nothing to sell.

[JoJoSM2]

Basically, you’d need to change your mortgage to a BTL and that borrowing is based on rental values and not your income.

You’d use your 100k as a deposit on the new property + take out your max residential mortgage of 125k = 225k would be your max budget for the new place.

I’d think hard about renting out as there are associated costs (as listed above) and then things like a boiler replacement wiping 2-3 months worth of net rent, void periods etc You always need a big buffer to weather any problems + it can get v stressful.

[TheMichelinLady]

Thank you all for the advice. As an anxious person, I really don't think it would be for me! I will shelve that idea I think. @Mosaic123 I think your suggestion might be my best bet, thank you.

[Mosaic123]

A seller might even accept a slightly lower offer from someone who has nothing to sell too. We did.

Just rent something adequate. You can compromise on size/ location as it won't be for ever.

[Justpassingtime1]

Good points made above. My friend is a landlord and he says it is going
to be very difficult to get rid of tenants in the future due to changes in
the law .

[Bells3032]

Having done this i wouldn't recommend it. It is a lot of stress and if you have a decent size mortgage your income from it will be very limited. if you want to please factor the following into your costs

• the extra 3% in stamp duty you'll have to pay on your new property (nearly £10k)
• Agency fees (usually 5%ish so £40 per month)
• insurance (probably about £1-200 a year)
• interest on your mortgage (assuming around 1.5% to be generous that's about £1500 a year)
• repairs etc
• taxes

So if you're a 20% tax payer your profit will be about £6k a year and if you're 40% then your profit will be about £4k a year. out of that you'll have to pay your capital repayment of your mortgage and any repairs etc

So there's the math for you. depends how much you need that £6k a year (bearing in mind the extra £10k for stamp duty), how much property in your areas rise and what you are willing to sacrafice for it

[RHOBHfan]

A BTL mortgage normally demands a 25% deposit.

You could therefore release £168,750 equity from your house, but would need to pay back the 125k mortgage.

The rest would be cash to either build in a buffer for big emergencies/cover voids or put with the £100k towards your new house.

Your BTL would have no impact on residential mortgage borrowing as a PP says.

There are risks associated though, as mentioned. Renting also isn’t the big cash cow some make it out to be.

[Bells3032]

oh and that's assuming it is rented at all times and tenants pay their rent