To sell and rent out when buying next home?

[Nofilter]

Hello,

I'm hoping for some advice!

I'm soon to move and buy our next family home and don't need to sell our existing house.

In my estimation surely it's better to keep our existing house and use the rent to pay the new mortgage and then benefit from (hopefully) equity building over the years.

But does this make sense?

There is enough equity in the existing house to have £1100 left over after paying the mortgage from the rent which would (in the current climate) easily cover the mortgage of the new house...

Thanks in advance!!

I ve known a few people who have done this and it’s worked well for them

I think there are some things to consider - if your current house is mortgaged (which I think from your post it is) then you would need to get your lender's permission to rent it out. This sounds like it shouldn't be an issue but it is worth researching.

Then you need to bear in mind that the mortgage payments on the rented property are not tax deductible. So all the income from the property will be taxed, rather than the amount left over from paying the mortgage.

Then there are a number of other costs to factor in - a management fee unless you want to manage the property yourself (I'd suggest you don't), finder's fee for new tenants, landlord insurance, gas safety certificate, ongoing repair costs, plus the wear and tear on the property and the 'void' periods when the property is empty.

Depending on how much rent you can actually get for the place, your money might be better invested in something safe - it's worth talking over with a financial advisor.

I should add the property DH owns and that we rent out is still in negative equity, some 14 years after it was first built, but that's a flat and they are notoriously tricky. If you have a house in a good area, you should see the value rise over time, which you can factor into your calculations before deciding what will give you the best return for the capital you have in the property currently. Personally I think I would sell and put the capital into your new mortgage, thus reducing the amount of interest you're paying the bank.

There are very punitive stamp duty rates if you are buying a 2nd property.

Oh yes, I'd forgotten about that, Fusion - a friend of mine got stung with that last year.

Omg Fusion I've just checked and it's astronomical!!

Does not this only apply to a second residential property though and not a buy to let?

Thanks all!

It’s for any property/ies that is over & beyond the one you reside in.

see here

Thanks. I worked it out on a Stamp Duty Calculator and it's not as bad as I first thought due to the tiered percentages!

Understandable I guess given the housing situation.

My existing house is in a booming area so it makes sense to keep it longer term I think...

My question came from something I read which said "do not keep debt (mortgage) to pay for another debt (2nd mortgage).

But I think my situation may not fall under this?

Thanks

What you propose seems absolutely fine.

Just note that on the first property I think you will need to either
A) get permission to let from the lender
Or
B) change the mortgage type to BTL mortgage

If possible I would just instead of paying the mortgage on the 2nd Home from the rent, just pay off the mortgage on the rental property itself. Reason: interest rates will be higher on a buy to let mortgage than on a residential.

Lmk your thoughts

Hello,

I have the go ahead from my mortgage advisor to switch the existing property to BTL.

What I'm trying to work out is whether it makes sense to sell this house and use the equity to have a smaller mortgage on my new house.

Both areas are doing really well, I'd say the new area is probably going to rise quicker than the existing one.

Given the expense of the stamp duty and higher rates for BTL how do I calculate this?

Thanks

Multiply your equity in your current house by the mortgage rate on your new house. That is what you will save a year by selling it.

Compare that to rent on your current property minus expenses, mortgage interest and tax. That will tell you how much how much a year keeping your current property will bring in.

Then you have to take into account additional stamp duty.

Even after all that, you would need to forecast house price growth on your current house, taking in to consideration CGT.

Your mortgage lender may not allow you to keep your current mortgage rate. If they transfer you to a BTL rate then it will be considerably higher. You have also got to be able to afford both mortgages, so have you looked into whether you can get approval for a second mortgage?

Compare that to rent on your current property minus expenses
And be realistic - it is unlikely to be permanently rented out, so you should expect some periods of no income, even if they are generally rare.

Hi,

Thanks again for responding it's very helpful.

I've had everything approved by my mortgage person who is my banker too.

House 1.
Value £350k
Mortgage £180k
Current res mortgage payments £260 (interest only)
Rental value £1450

House 2
Value £700k
Deposit £250k
Mortgage £450k
Mortgage payments a guess £1500 on repayment?

How do I work this out? Confused!! Also what about tax because the whole rent is now taxable isn't it?

I'm now on a standard tax rate c£50k ish... after tax and mortgage taken out of the rent is it worth it and then paying more on the new mortgage rather than using the equity to have a smaller mortgage?

Does it make a difference to have BTL properties within a limited company because I have 1 other?

Is this something for a financial adviser to look at do you think? Or an accountant?

Thanks!!

delilah that’s not necessarily true.

I’m with Bank of Scotland and asked for “permission to let” and they granted it. I am still on my residential rate, and I have been renting my flat out for 2.5 years a now.

I think procedures vary between lenders but most won’t force you onto a more expensive BTL mortgage straight away.

Hi OP - Yes is definitely speak to a financial advisor and see if it’s worth your while as the govt are definitely making it harder for landlords right now.

^Mortgage £450k
Mortgage payments a guess £1500 on repayment?^

I think you're well out here - I have a 200k repayment mortgage, currently in a fixed rate period, and it's costing 1200/month. I think you're looking at closer to 3k for repayment on 450k.

You need to do a spreadsheet, with real figures. We upped the mortgage slightly on my house in order to get a larger deposit to put down on the house DP and I bought together - because with the mortgage rates on offer this made the best financial sense. BUT there was an optimal amount to up it by - as past a point, the BTL mortgage became too great a percentage of the value of the house, and the rates offered went up, which negated the benefit of that extra money on the new house.