Can't afford to buy a bigger property in an area - is it worth renting instead?

9 replies

Tootingbec · 04/04/2011 14:36

Just want some views on the following idea. We love the bit of London that we live in and have a lovely flat that we own. However, we are starting to burst out of the seams as we have 3 children. Basically, if anything new comes into the flat, there is nowhere for it to go......

We are not in a position right now (finances, work/school committments) to up sticks to a cheaper area and thus be able to afford a bigger place. To buy a bigger place where we currently live is also out of the question (would need £250,000 more on our mortgage )

BUT, we could easily rent out our flat for and use this to put towards renting a nice big house in our area, with us then paying the shortfall between what we would get for our flat (net of letting fees etc) and the rent for a bigger place.

Is this a stupid idea? Both my DH and I have been homeowners (individually and as a couple) for over 10 years so the thought of renting seems a bit of a backward step, but if it means we can actually have some space until we are in a position to buy somewhere bigger, then is it a completely odd idea? We would still be homeowners, just not living in the property......

Anythoughts on this as a medium term solution to our space issues?

Thanks!

OP posts:

chandellina · 04/04/2011 14:40

i've only ever rented (now finally looking to buy) so I haven't been in that situation, but as a London house renter I can say you are likely to get a lot more for your money than you would buying. i.e., difference between rent received and rent paid will be a lot less than to extend the mortgage and buy bigger.

The risk is that you end up unable to buy something as nice as you are renting!

BikeRunSki · 04/04/2011 14:46

Friends of mine rented to stay in a desirable area, for about 3 or 4 years. They have recently inherited a lot a money and bought there now.I think they knew that there would be reasonable inheritance at some point when they made the decision to step off the property ladder.

greentown · 04/04/2011 17:19

Some time ago we looked into doing this too - not to get a bigger place but a place in a different area. We couldn't get the maths to work, the rent we would have received wouldn't have covered the rent on the new place after we'd paid our mortgage and we'd just didn't have the extra cash at the time to cover the difference. In theory it sounds reasonable but it's hard to escape the thought that in some way you're giving someone else money you could be using or saving for yourself - how realistic it is just depends on your income I suppose.

minipie · 04/04/2011 17:27

Hmmm. To be honest, having owned a home I think it would be quite difficult to go to renting - not being able to do what you liked to the place, etc. Also don't underestimate the hassle of being a landlord and how you would feel about other people living in your flat.

Might you have any extension options available to you? Loft conversion? Basement extension? Garden room? I know a couple who are doing a basement dig out, it's £££ of course, but still cheaper than moving to a bigger property in their area of London. And they are adding value rather than spending the money on rent.

lalalonglegs · 04/04/2011 18:48

Bear in mind that you will have to pay tax on your rental income (which could be 40% if it tips your earnings over the high-tax threshold) which will eat into how much money you are paying in rent, iyswim.

mulranno · 05/04/2011 13:36

do you have to pay tax on letting your own home straight away ? I know lots of people who have had to do this to take up job opportunities and this would not be feasible f they were taxed. I am thinking of doing the same myself as a new school in Sept for one of the children will mean a long school run for 2 years until she is allowed to get the school bus on her own. After years of trying to move on from her ugly but spacious 70's house which never happened as the numbers never computed (moving costs, big price gap for next hse) she has now let it and rents a stunning detached cottage for a few hundred pounds more a month - so as you say gets to live in a house she would otherwise never afford -- she has also negotiated a 2yr let so thatthe family do not get disrupted amd moved on every 6months - which happened to my mother when she was terminally ill with cancer...

mulranno · 05/04/2011 13:37

iskra · 05/04/2011 13:39

there was an article in the Evening Standard recently-ish about this, several families doing it.

lalalonglegs · 05/04/2011 14:02

You definitely have to pay tax on any "profit" you make on the house you are letting: so any amount that you receive beyond the mortgage payments (you can only include mortgage interest not repayment), repairs, money to letting agent if you're using one etc. You have to factor in the tax from the day you start letting it but you don't generally pay it until the following financial year when you fill out your tax return. You cannot offset the amount of rent you are paying on your new home against the amount you are receiving from your old one.

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