Would moving into rented property when you own ever make sense?

[Tobaiass22]

Hi

We currently own a 2bed maisonette but ideally want a 3 bed house as children need own room

Also we would ideally live closer to secondary of choice but the area is expensive and out of price range

In this position would you go into a more expensive rented property than the one you pay mortgage for, while you rent the one you already own to live in a better/ more convenient type of property?

Bearing in mind that the rent of new place would be more than double my mortgage costs? Is this a mad idea?

I own a house that I no longer wanted to live in but couldn't afford to buy another, so I rent in a much nicer area and xh lives in the other house! If he moved on I would continue to rent it out, I can't see myself ever living there again (rent is 3 times my mortgage!)

I think renting while owning makes sense when you are working in another town/country and are not sure whether you will stay there or will return to the place your home is. Taxes on buying and selling are so high that selling the original property makes no sense.

But you obviously have to be in a position to pay the rent on the new property AND meet any outstanding mortgage/maintenance costs related to your original home. You cannot rely on the rental income which may or may not be forthcoming (tenants can default and you can have empty months) and you need to remember any rent it will be taxed at 20%, 40% or 45% depending on your income, plus you may have 10% agents fees, insurance costs, etc.

Not sure how easy it is to rent out property A and then apply for school places from rented property B. No problem if they are a long way from each other, but admission authorities can be sceptical if the rented property means you can access a better school than you could have accessed from the home you own. Loads of people try to do this in London but they find they are refused school places.

How many years would you do this for? I think if you can afford it then do it. I'm about to by a place in London - once my kids are older I might rent it and live somewhere else.

If renting would be double your mortgage, what would the impact be if you just got the bigger mortgage?

How would you pay mortgage and rent if you had a non-paying tenant?

Probably about 3years initially then review the position, current mortgage £700 but rent in desired area is between 1500-1700

I now rent the flat unused to live in. I wanted to move to somewhere different it wasn’t one hundred per cent sure about it and didn’t want to sell a London flat.

so a bit different. But for me was a good idea. I’ve moved once since and am about to move again which is much easier renting and my flat is ticking over and keeping track with the market rises so I’m not priced out.

you will need to get a consent to let on your mortgage or a buy to let. And there are tax implications. And being a landlord can be a mindfuck. But for me it has largely meant I’ve been able to have my home ownership cake whilst also being free to move around. i am probably a bit worse off financially than of o had sold and bought in the first place I. Moved to. But I’m happy to take a small Gina coal hit for the freedom

It's a mad idea tax-wise.

Despite the common perception, owner occupiers have a huge tax advantage compared to landlords. When you live in your own house you pay no tax on the imputed rent (the accommodation with which your asset provides you). When you rent it out you will need to pay tax on the actual rent, and then buy alternative accommodation out of that taxed income. Depending on your marginal tax rate (which may well go up because of the rental income) you'll be quite a lot worse off.

If you are intending to apply for a secondary school place from the rented property when you own a property in a different area I'd check with the admissions office at the council to see if that would be an issue. Because it may well look like you are moving purely to improve your chances of admission.

As for the costs doubling - it would seem easier to just sell your own property tbh! Otherwise you are spending all that money on rent and having to maintain your own property at the same time, if anything goes wrong (boiler, roof) at your house you'll have to fix that anyway.

Your mortgage is £700 but how much would you rent it out for?

If the finances didn't work you would ultimately have to move back in, sell up, buy a shared ownership instead?

I would do it. You are staying on the property ladder whilst living where you want. A few farmers I know do this, they are tenant farmers, living and working somewhere they could never afford to own, whilst owning and renting out a place in town. This ensures they stay on the property ladder and have their own place to retire to. I also have known pub tenants do the same.

I think the biggest barrier could be financial depending on your income. As previously mentioned (and I'm sure you know) you will need to pay tax on your rental income. Mortgage interest is no longer fully deductable as an expense if you are a higher rate tax payer (or your rental receipts push you into higher tax payer status). That would mean 40% tax on your rental income after expenses with a 20% credit back on mortgage interest payments.

For example if you received £800 a month rent and paid £100 a month out on insurance/gas checks/electric checks repairs and maintenance leaving £700 income. If your mortgage is half capital repayment half interest you would pay 40% of £350 (£150) tax for the capital repayment and 20% of 350 on mortgage interest (£70) so £220 × 12 = £2640 in tax to pay. But you would need cash flow available as the rent money is tied up in your mortgage.

For a lower rate tax payer 20% of the £350 that is paying the capital on the mortgage so £840 tax.

When you sell up a property that has been rented out you will have to pay tax on the gain in property value since the property has been rented (less your annual capital gains allowance) so if the length of time you rent your property out for drags on you will no longer have the full value of the property when you sell up and buy again - if your annual capital gain allowance doesn't cover the gain.

I can't help but think if you could afford all that tax (particularly the higher rate tax payer tax) you would be better off putting the rent you are paying and tax you would have to pay together to pay your own larger mortgage.

Those numbers are of course if your property was let to payibg tenants. If it was between tenants could be a brief gap but bad/non paying tenants would be hugely costly.

Could you find anything if you were more open minded about the new property such as converting a dining room into a bedroom (and having a living room or kitchen with a table), converting an attic or building an extension.