Anyone have experience of buying a new home but retaining current property as a buy to let?

[AVY1]

Looking for some basic advice about converting our current property to a buy to let and buying our new home (we're buying from grandparents) and whether it is a good idea.

We've just inherited £60000

Our current home has £89000 left on mortgage and is now worth approx £178000 (we purchased for £129000)

House we wish to buy has been agreed at cost of £175000. We have always loved this property and after reconciling after a brief separation last year are definite about making this change (better location and more appropriate house - it's basically a chance to buy our forever home 15 years before we thought we could)

Our combined income is £32000 expected to rise to at least £42000 by 2018 (I am currently retraining)

We have one DD who is 6 but no childcare costs as I currently freelance. No plans to have another for foreseeable future.

Does anyone have experience of this and think it is doable?

Would you use the inheritance as deposit on new house or remortgage current property?

The idea is to sell the rental in 5 to 10 years.

Does anyone think this is a wise way of investing the inheritance or would you simply sell and buy? I'm just curious as to whether this has been a good experience for anyone?

We currently pay £560 a month for our mortgage and the house size in our area would see a rental rate of 750 - 800pcm.

We can port our current mortgage over if we sold for £175000 minimum.

I guess, in short, would you tie your money up in property or a bank account?

Don't forget that, if you buy a second property, you could be liable for a huge wedge of stamp duty and that the government are in the process of changing the rules on taxation of rental income - you can currently claim your mortgage interest as an allowable expense but that's being phased out over the next few years.

Do be aware that you will pay capital gains tax when you sell your rental property.

Thank you. I will read up on it. I really am in two minds about the whole thing!

The chances are you won't be able to keep the current mortgage on a residential house for 5-10 years without converting it to a btl mortgage. Would the rent cover a btl mortgage rate on the current outstanding?
You are talking about having 200,000 of mortgage (89,000 left on current house, 175,000 minus 60,000 inheritance). Minus some fees etc. Don't forget he additional stamp duty on second house purchases. Would you be able to cover that much mortgage on months the house is unrented?
We are renting our family home as currently abroad. The agent is taking a big cut for managing it for us, but it is not a great money maker. And it is a hassle. Freezer broke this month, the drains have blocked, the fences blew down. And all I have to do is authorise the agent spending our money!!! I highly recommend selling current home, and buying the next one with the smallest mortgage possible. Interest rates are only going one way.

Thank you. I've spent the morning reading up on different things in more detail. We're both uncertain so I think that means we shouldn't take the risk or put the pressure on ourselves. Our parents have been keen for us to invest in to property but I think that would be something for us to consider further down the line. Thank you all for your thoughts.

There is a Let To Buy mortgage exactly for your circumstance.

I would talk to someone about it and get them to do the exact models on how it would work financially.

Rental income of £750pm should support a LTB loan of approx £144,000 based on average stress test figures. Some LTB lenders are happy to ignore personal income (not sure of the basis of your employment/income). Not all lenders do LTB mortgages and those that do usually require simultaneous completion on the onward purchase so the timing needs to work out. Not sure of your existing mortgage but presumably it is on a repayment basis. Usually, LTB (or BTL) mortgages are interest only with the repayment being via the sale of the property.

You should speak to an independent mortgage adviser who can give you proper advice regarding your options.

We did exactly this after not being able to get a reasonable offer when we tried to sell it.
We had the same tenant in for 3.5 years and she was fab, she made it easy!we switched to a BTL interest only mortgage so the extra would pay the tax/maintenance/we could save for void periods.
Now she is going, we are trying to sell... it's worth 20k more ((according to agents,we aren't sure!) but at this stage we would be happy if we could get back what my DH paid for it 10 years ago... it's been ok as we had a fab tenant but a real faff!

As someone who was forced into BtL in order to move location when current house was in negative equity, I would urge against it in your circumstances. Firstly, I am not sure that on your combined income you would even be able to get the mortgage on the second house (you would have to be able to show 6months worth of rental income on the current house in order for that to be taken into consideration). You also need to consider void periods and how they would be covered, again not sure you could do this on your current income. Our first lot of tenants recently moved out, we had new tenants in less than 3 weeks after the first lot moved out, but that still cost us c£600 in loss of rent, tenant find service and new tenancy agreements.

You are in a great position with the recent inheritance - don't invite stress and hassle into your life in the form of btl!