Taking a new mortgage

[Melaniais]

Hello, any views here pls. After 7 yrs we managed to pay/prepay almost half mortgage on our our 2 bed flat in zone 2 London. But flat is becoming too small (2 kids) and we found a 3 bed house in zone 3, good price, need some updating, but doable, kids won’t have to change schools, still very good commute to work. I don’t feel like selling the flat now, it didn’t gain much value plus some emotional attachment… according to broker, we should be able to afford taking another mortgage and converting current one into BTL. Renting out the flat should not be a problem, idea would just to cover monthly mortgage payments on flat and tax. Current mortgage c.1700 monthly, we could rent it for 2000-2100. But I fear it’s a lots of money with 2 mortgages if something goes wrong. On another had, a new house would be perfect, bigger space. If we decide to keep the flat long term (aware of huge stamp duty) it would hopefully be a good investment, maybe leaving it for kids in the future. We are in our 40s so so also feels a new mortgage is now or it will be too late soon.

If that flat’s current mortgage is 1700 and you rent it for 2100 gross it will almost certainly be making a monthly loss after tax, agents’ fees and other costs. Also bear in mind you will probably have to remortgage onto a BtL deal and those tend to be more expensive.

Do you want to be paying a mortgage on a new house while subsidising negative net cashflow on your old flat?

No, your margins are too tight and after tax and expenses you'll be operating at a loss. You need to be able to manage your mortgage with no income from your investment property for a minimum of a year, because with the new laws due any week soon, it is likely to happen at some point that you will have a non paying tenant and it will take 12 months of expensive legal action to remove them.

It is very tight.

If the budget goes against you it could be painful. Could be an expensive mistake considering the additional stamp duty.

You would also have to consider the capital gains tax on the 2nd property. Reckon that tax will go up too.

I know it’s tight.. that’s why I’m hesitating. Better just sell the flat and use equity to pay higher deposit on a new house? Or wait to repay more mortgage So that the difference between mortgage instalment and rent is wider and then buy 2 nd property?

Dont do it. If I had a penny for all the people I’ve met who did similar and then ended up thousands down.

Hi OP, have you factored in that a BTL tends to be a higher % so if your current mortgage is £1700, a BTL won’t be. You can ask for permission to let from your current lender, but I’ve done this in the past and they’ve added 1% to the mortgage interest rates as a fee.

I think I’d just use the equity to keep my residential mortgage lower. We do have three rental properties but they’re all with pretty low rents that are easily covered if necessary.

Sell the flat.

If you don't want to sell the flat because of an emotional attachment, you're not going to make it as a landlord.

good Point!

I’d sell it. I let out my flat when I moved but I barely broke even even though I rented it to a friend (so no agent fees). Thankfully it went up in value during the period it was let out but I wouldn’t bet on house prices going up in the short to mid term now.

Presumably if you sell and increase your deposit on your new house you will have a lower monthly mortgage payment and will save on the stamp duty. If you put that into an S&S ISA on a regular basis you will build up a fund which you can pass on to your kids. This would be a lot less hassle than a BTL you have an emotional attachment to.