Anyone rent out their first (still mortgages) home and then buy their second house with a partner?

[Truly2435]

Anyone bought 1 house with a lengthy mortgage by themselves to live in and then after a few years rented it out and bought another house with another person to live in? If so, could you talk me through that? Would a greater deposit be required on a second mortgage? Can you have 2 mortgages simultaneously? How is affordability for this calculated? Will it be factored in that rent on property 1 would be part of the incoming money that would offset the outgoings of having to still be paying mortgage 1?
Thank you

Bump

Yes I do, but the mortgages were both arranged just before the 2008 crash, so I don’t have up to date experiences to share. We managed to use some equity in the first house to help buy the second. But honestly it’s been a lot of headaches and worries I could do without.

Some other things to think about (you may have already considered this)

• Tax implications. Interest paid on mortgage repayments for rental properties is now not tax free. You can claim some of it in finance costs, 25% I think. Consider all your income and work related taxable benefits and whether the rental income pushes you into a higher tax bracket. For me, because of tax and other expenses I get very little ‘disposable’ income from my first house, obviously it’s a long term investment and my mortgage is very slowly going down but do think about whether you’re relying on the income on a monthly basis.
• landlord responsibilities - this can be a lot of work depending on the tenant. If you rent through an agency this can be reduced but it costs.

Realise you didn’t ask for general advice but thought maybe useful to share

You will need to re-mortage the 1st house or apply to your bank to convert the first mortgage to a buy to let mortgage, you can't rent out a house on a normal residential mortgage (well you can and just hope your bank doesn't find out but there will be a clause in the mortgage agreement not to do this without the agreement of the lender) and you definitely can't take out a new residential mortgage while you still have a current one. Buy to let mortgages usually require a lower loan to value rate than normal residential, usually you can borrow max 75% of the value of the house on a buy to let and obviously the higher the LTV on both the buy to let and the new residential the more you are paying in interest. So this will limit how much equity you can remove from old house to put towards deposit for new house - usually if you don't have a huge amount of equity/capital it isn't advisable to split it in this way but obviously it depends on the capital growth you'd be expecting from each property and the rest of your financial circumstances...

As PP says, when considering if this is really worth it, you also need to factor in tax on the whole of the rental income (you used to be able to offset a lot of the expenses including the mortgage interest but no more, hence BTL being a lot less profitable for the small scale investor than previously), plus all expenses, agents fees, maintenance of the property etc. Would you be able to pay both mortgages for 3-6 months in the event of tenants refusing to pay rent and having to be evicted or a lengthy void period? Yes rental income can be taken into account when calculating affordability of new mortgage but only after expenses and tax are removed and the fact you already have a substantial BTL mortgage could in theory count against you for a new residential mortgage if the rent will only just cover the mortgage plus expenses - you'd need to talk to a proper mortgage broker to see what would be possible.

Out of interest, why would you be looking to do this rather than just selling the old house to fund the purchase of the new? Is it to do with protecting your interest/capital in the event of relationship breakdown? You don't have to answer this of course but there are potentially other ways to achieve the same end without all the hassle and expense of becoming a landlord so would effect the advice you'd be given

I am in the process of buying a home with my husband and haven't sold my first home yet (in the process). I put it on the form but was never asked about it. think they assumed i am selling it (which I am). But please make sure you consider that you will need to pay additional stamp duty at 3% on your home (you can claim it back if you sell your first home within three years).

@maxelly of course you can rent out a home on an existing residential mortgage, but you have to contact the bank and get their permission.

Well yes that's what I meant, you need to ask permission, you shouldn't just rent it out and not tell the bank (although people do!) - but IME a lot of banks will only give permission to rent out the house while remaining on a residential mortgage for a limited time (e.g. working abroad for a year), or if you want to long term rent it out and buy somewhere else, they will want you to convert to a proper buy to let mortgage - not a problem if you have sufficient equity but if OP's on a 90% LTV or similar it might be an issue for her. And also if she then wants to take out a 2nd residential mortgage that could become an issue AFAIK...

You don’t necessarily have to convert it to a buy to let. A second residential mortgage is not a problem if you have the money for it,but it does have the tax implications someone mentioned above.
OP the rent coming in will be counted as income for your mortgage application. With regards to income, you also need to check if this bumps you into the next rate.
I think you need to speak to an adviser,they might get you to remortgage your flat for example to release some equity which then makes your second mortgage with a lower LTV ratio etc. A mortgage adviser will be able to run a few scenarios for you.

Thanks a lot everyone
My first home LTV is 80%
Yes mainly just to have a safety net in case of relationship breakdown etc

Have you raised a sum of money as the deposit for the new joint purchase? Has your DP?

If you've only paid off 20% of the value of the first property, you might be better selling it and using that equity towards your deposit. If you pay a significantly higher proportion of the deposit, that can be noted in a deed of trust, to ensure you get that back if you split.

Unless your first property is mortgage free or almost paid off, it's really not worth it. A chunk of the rental income will go on agents fees and maintenance costs, then more to the tax man. And if the property is empty for a while or you get tenants who default on their rent and need to be evicted, it'll have serious consequences for your financial situation.

Not yet no. More thinking into the long term future

I did this. Remortgaged first solo home with BTL with 75% LTV. Used equity for deposit on joint home. Had this documented in legal deed of trust. I rent out my solo home. It was in a hot spot for rentals. I rented privately. I did this in 2019 so pre Covid. Used a broker who was v helpful. Talked through with partner in advance what we would do if we split up (I know this is no guarantee of how someone might behave but had at least thought it through). First place is my safety net. I may not be able to move back in quickly as it is rented but I do at least have somewhere generating income which means I could go and rent somewhere short term immediately if needed.