Second home??

[starchildmum]

Hi

We currently live in a small 3 bed flat with 2 kids and a 50% mortgage. We would like to upgrade to a bigger property. However we love our flat and are emotionally attached. It would also be the ideal place to come back to once kids have left.
Can we keep our flat AND buy a new family home???
Our current flat would generate enough to cover mortgage 1.
Mortgage 2 obviously is a bit trickier than 1st one.
Bigger down- payment 20% for mortgage 2, bigger stamp duty. This would mean another 5 years of saving and injecting money from other sources.
The question is not can we do it, but would it be a sensible thing to do? Would it be a fabulous investment or problematic and not worth it?

It would be worth speaking to a broker to see what you could borrow. Is the flat in a city centre, touristy area or near a university/hospital?

1 option might be to rent the flat on Air BNB, rooms.com etc and have a management company manage it for you. It would mean you could visit and stay there again when not being rented out, BUT, it may not be booked out all the time. In that case, a regular rental would be better.

If near a uni, that might be an option to. My now DH's old house is rented out to students. Its managed by the student union, not a regular real estate agent and we get slightly more than if it was rented via an agent. Yes, there are more regulations than a regular rental, but so far, no major issues. If they leave the place a mess- they don't get their degree.

Accommodation for hospital staff can also be in demand. I only mention the above options, because they can pay a better rental than a regular, real estate option.

Hi

Our flat is right in central London in a very busy neighbourhood, lots if families, tourists and it is a very pretty flat ( beautiful view) so it can be rented very easily.

The new house would be a little outside London in a leafy family area.
The downside would be a high mortgage rate as only 15 % downpayment and the fact that we ate not 100% sure that we can make it happen so get so much money together.
But I want to try because on the other hand I see only advantages. Flat can generate rent beyond mortgage as retirement income, we can return to flat maybe one day, we can sell house again if not needed anymore etc.
so want to try.

You would need to check with your current mortgage company that they would be happy to move it to a buy to let mortgage (or whatever type would be appropriate for whatever you plan to do).

You need a buy to let mortgage know current flat

You would also need to pay tax on your rental income and mortgage interest may not be an allowable deduction for both of you

When I last mortgaged my buy to let (I already owned it, but needed the money), the rent had to be 125% of the mortgage repayments, plus I had to show other income above a certain level (my mortgage was 40% of the property's value). Then you have to factor in getting your flat to rentable standards (fire doors if required, safety certificates, smoke/CO2 detectors, high enough EPC rating etc) , repairs and maintenance, someone to manage it unless you do it, plus you still have to pay the service charge (tenants pays council tax and utilities). Do your figures carefully, and be aware you could get a tenant who doesn't pay, causes a nuisance and/or damage and the eviction process favours the tenant.

You'll need a buy to let mortgage. You'll have to leave a small % of the equity in the house as a deposit for the buy to let. You will be taxed on any profits from rent. You will also have to pay a tax on any second home purchase.

Hi

We did this. We remortgaged to a BTL mortgage on the original property with 75% mortgage. This released additional equity for the deposit for the new place. We got a long-term tenant and manage the property ourselves. There are tax implications: extra stamp duty for second home, capital gains tax if you sell after 3 years. There are maintenance and repair costs and pay for gas cert each year. So if it's purely for investment/financial reasons there may well be better options but there were other reasons for us to want to keep the original property and it has worked out well so far.

OP. We did the same a couple of years back and like the post above pulled out all the equity we could from the flat by raising a 75% BTL mortgage. Which was more than initially put in.

Consider GCT, SDLT, income tax tho. You’ll lose GCT relief if you ever sell the flat, have to pay the 3% penalty SDLT rate for second home. Also rental taxable profits are now much higher due to the removal of the interest tax deduction.

worth speaking to your accountant too