Should I rent out my home?

[Helmlover]

I’m in the fortunate position of owning my home outright (through sad circumstances), however in hindsight it was not the right property to buy in the first place as my partner and I are trying for a baby and my current house is just not big enough for a family.

I tried to sell it a while back with very little interest so I have recently considered renting it out, however I am completely new to this and somewhat apprehensive. We have seen a house we would like to buy together but obviously we would need a joint mortgage. When applying for a new mortgage would I have to declare that I already have a house, and am I still able to rent it out given I don’t have a buy to let mortgage (I don’t have a mortgage at all)? Is renting really as lucrative as I’ve heard it can be, or would I be better off with just a quick sale?

Sorry of questions seem silly but as I said I am very new to this

You do not need to get a BTL mortgage if there is no mortgage to pay on the house (although if you decide to release some of its equity in the future, it will have to use a BTL product). How lucrative renting will be depends on the location, the condition of the house and the demand locally as well as how much you earn as the rental income could push you into a higher tax bracket. Bear in mind that you will be liable for higher stamp duty on your next home if you do not sell your current one.

You would have increased Stamp Duty liability on your purchase if you already own a property. There are lots of regulations and legal responsibilities for landlords which are set to increase, also income tax to pay on the income and CGT liability if you sell in the future, so do your homework. Whether it is economically and emotionally viable for you is only really something you can judge. If you sold you would have more capital to put into a new property, reducing monthly outgoings , or enable you to buy a larger property or in a wider choice of area.

When does stamp duty kick in? As my property is only worth £78k and our new prospective house is worth £90k. How much stamp duty do you think we would have to pay?

Stamp duty starts at £125k
But if you own another property, really not sure how that works.

Doesn’t seem right that professional landlords could own 10 properties under 125k and not pay sdlt.

Stamp duty on a second and subsequent home is three percent more than on the first.

Stamp duty on your second home would be three percent.

But if it’s under the threshold?

You would pay £2700 in stamp duty for a £90000 house. The higher liability stamp duty kicks in at £40,000.

Extra 2% stamp duty on the total house price on a second property.

Renting is lucrative if you rent out a filthy dump in London where people are desperate. Do it properly and a NET return of 3.5% is just possible on a cheaper property with no mortgage.

There are hefty insurances, tax and many rules.

Drop price and sell.

If the property’s worth £78k you will probably have a good yield. Roughly speaking, lower value=better yield but less prospect of capital appreciation. But it all depends on local market conditions. If there’s lots of similar properties to rent you may suffer void periods if the market’s saturated.

I’d talk to some estate/letting agents locally and ask what the demand is like. Really you want decent, long term tenants. Changing tenancies and having voids is a huge cost to landlords, especially with them now bearing the cost of new tenancy set up fees. Even if you get fully managed agents there’s still some admin involved in letting, including filling out tax returns. It’s not a hassle free investment.

You will need to bear in mind the extra stamp duty on your new purchase as noted upthread.

You could always try letting it and see how it goes. If it doesn’t work out stick it back on the sales market at a lower price.