Mortgage question - house owned outright - options re: renting out and what else could we buy?

[lazarusb]

My dh and I are hoping to move in 2/3 years away from our hometown. Our youngest children will be at university hopefully but they aren't keen on losing the security of our current house long term.

We are wondering whether, if we rented this house out (mortgage paid off) - what kind of mortgage could we get on a house for dh and I to live in? Would the mortgage company take the current house into account as an asset to enable us to get a bigger mortgage? Or would it based solely on our salaries at the time?

We will get proper financial advice at the time but don't want to get that ball rolling yet.

The usual way to do this would be to get a 75% LTV BTL mortgage on the house you're leaving then purchase a new house with this money plus any you raise through a normal residential mortgage.

So if you're house is worth £200k, you raise a BTL for 150k, and then get a normal mortgage on top to buy whatever you wanted to live in.

Of course you'd need the salaries and credit history to get the loan needed and the BTL would have to stack up in terms of mortgage vs return.

Do you have any figures in mind?

Bear in mind the implications for CGT and council tax, and income tax.

Thank you, that's very helpful. Our house is currently worth about £230,000 and it's likely that we could rent it out for between £800-£1000 a month.

Salaries are likely to be in the range of around £65k - I'm due to qualify at the end of next year so that's an educated guess at this stage.

We have a good credit history so I don't think that will be a problem.

Yes, I have some idea of the tax implications but would need to look into that nearer the time too.

We're just trying to work out what is feasible and whether we could get what we want to move into without selling the current house. It's the only house we've ever owned so am out of step with what's required.

Yield of around 3-5% depending on the rent you charge and making some assumptions on LTV, rate, mortgage fees etc. Not brilliant - I wouldn't be buying to make that, especially when that doesn't take into to account the risks of bad tenants, repairs, insurances etc.

Is there a reason you're particularly attached to keeping the property? Are you in it for yield or capital increase? Assume you've read up on the legal requirements involved in a letting a business?

That said you'd release 75% of 230k in cash (172k) and be able to add a residential mortgage to it - usually around 4 x joint earnings - so you'd have a fair bit to play with. But there's a lot of exposure there, a lot of borrowed money, and you may not be comfortable with that.

Thank you - it's only something we are mulling over for now. We want to keep the house as somewhere that our children could move back into into a few years time if they wanted to. We live in a thriving town which is good for them, but we want to move somewhere to a large village closer to my work.

If it can just provide yield that would be fine. We aren't expecting a significant capital growth - it's already worth over 5 times what we paid for it.

We are aware of the legal requirements re: letting but would still take specialist advice and preferably use a letting agency to screen tenants etc.

On your figures, that would free up a lot of cash but we wouldn't need to go for the full extent of that - the kind of properties we are looking at now wouldn't mean that we are mortgaged up the eyeballs! We still want to have a bit of spending money too if we can.

You don’t really need to get a buy to let mortgage as the bank has no interest in it now so you don’t need permission to rent it out. I would think you would be better and cheaper to get your own mortgage for the new house for you and DH.

I was in a similar situation to you, moved out of house and rented it out whilst moving to another but I still had a residential mortgage on both. I just had to get permission to let the original house from mortgage provider. For the new mortgage they will take into account rental income expected from the new house when granting your mortgage application.

There is a mortgage now called Let to Buy, rather than BTL, maybe talk to a mortgage advisor about it. It is different from BTL.

But a lot can happen in 2-3 years. Older children may have jobs in other parts of the country, live in partners.

I understand wanting to hold on to that house, or a.n other property as an investment, but how will it work if they have a shared house that they might not have an equal interest in or need for, and if they use it rather than it generating rent?

Thank you Bumble. As our mortgage will paid off on house 1, we won't need permission to rent it out so that's one less hoop to jump through.

Would we need to prove that we could rent our house out before getting a mortgage offer for house 2? I think the logistics of having to move somewhere temporarily (possible 6 - 12 months) while our furniture is in storage might be quite testing...!

You could of course leave the existing house without a mortgage. But you'd be buying again from scratch so would need a 10% deposit as a minimum and would be looking at around 4 x joint salary on a mortgage. If you have kids at uni I assume you may not be looking at a 25 year term but you'd need to look at that and what it means for repayments.

Oh and remember the 3% stamp duty surcharge assuming it's still in place by then - you'd need to pay that anyway if you're buying a second property.

We are thinking of doing something similar, next year own out house out right and have a deposit for a new one, we would hope the rent would pay the mortgage on the new place. It’s the tax and other cost implications that i’m unsure of really. Our current place has doubled in price in the last 8 years and we see it increasing more so see it was an investment long term.
I don’t really know who you would ask for advice on this sort of thing so this thread is perfectly timed.

@lazarusb do you actually need the rent income in order to be approved for a new mortgage? If you have a pretty decent salary and assuming you don’t have huge amounts of other debt then you possibly wouldn’t need to even take the rental income into account because even without the rental income the bank may deem the new mortgage affordable for you. Depends how much of a mortgage you’re looking for. You could go online and do a quick ‘what might a bank lend me’ calculator

Thank you all.

No, I'm thinking from Shelley's advice that we may just as well get a new, separate mortgage based on our salaries. We have little or no other debt (small credit card debt which will paid by then but no cars etc.

We would be looking at a 15 year mortgage I think but could save a 10% deposit in the interim. I would prefer not to be reliant on the rental income so that we could charge a reasonable rate and hopefully be ethical landlords.

Nearer the time we will take specialist financial advice but I'm very grateful to you all for giving us much to think about and a better idea of all the aspects we need to consider.

For the second property, you don't need a BTL mortgage ( generally these are at a higher interest rate)

Save up 15 percent + deposit & take out a new mortgage
You would need to pay stamp duty

The alternative, would be to equity release to help purchase the second property