Rent out our house or sell it? Let-to-buy - Advice please!

[Bagger288]

Hi all,
So myself and DH are in the incredibly fortunate position of owning our house outright.
It's a two-bed terrace in a sought-after area of a city.
We have a one-year-old baby and a dog and would like to move somewhere with more space.
We met a mortgage advisor today who suggested that we remortgage our current house, let it out, and use the rental income to cover a mortgage on the new house. He seemed to think that as long as we bought a house worth less than £300k, it would work financially and both mortgages would be covered by the rental income of our current home with cash to spare.
(Note: we have no savings and work low-income jobs. All our money is tied up in this house.)
Alternatively, we could sell our house, use the money for a deposit. We could afford a (much much nicer) £400k house with a mortgage of only £300 a month.
Now I'm torn. The thought of having two mortgages is daunting. From what I've read, being a landlord is a massive pain in the arse. However - if everything went well with letting out our place (and even if we had the odd blip), in twenty years' time (age fifty-ish), we'd be so much better off. We'd have a nest egg for our kid (or kids). However, it would mean getting not such a nice house now and the stress of being a landlord. Plus this is our family home and the emotional connection to it makes the thought of renting it out quite difficult.
Selling and moving means we could get our dream house. Not have the stress of being landlords. However, the long-term financial rewards wouldn't be nearly as great.
Any experiences of this situation? Advice?

LL here and it’s not a massive pain in the arse for the most part. Your home is a liability, a BTL is an asset. Definitely keep it if you can. Think of it as your pension pot.

That said, you mention you’re on a low income and boilers etc do break. I replaced a boiler at the beginning of the year and £3k wipes out any profit for a couple of years. Don’t forget you’ll also get taxed on income which soon won’t be after mortgage interest but including it, so do make sure it’s affordable.

And you say you have no savings, so how would you afford a deposit for the new place if you don't sell your home.

When renting out a property things happen which need fixing immediately. You need to have a cushion of savings kept for that.

Seems like it would be difficult, and stressful, to have another mortgage.

I'd sell the place you have, buy a new place which has tons of potential but keep, say, £50k aside as money to do it up when you are ready. Or it could be used as a deposit for a small rental property if you'd like to do that with it. Gives you choices and you might earn more in the future.

@Bagger288

OP will get the deposit mortgaging her current property

We were in your situation 2 years ago. We rented our old house out and it was a PITA from day one. It needed a new boiler, tenants didn't look after it, having to do tax returns and always the worry of if it was empty etc.

We sold earlier this year and I am glad to be rid of it. I hate being a landlord and it is even more difficult when it is a house you've lived in IMO.

Have you considered the additional stamp you will pay if you buy a second property?

If you aren’t sure you want to be landlords, don’t do it. It isn’t an attractive proposition anymore. Private landlords are hit with increasing regulations and costs, plus the responsibilities of being a landlord. The risks increase whilst the rewards lessen.

It’s obviously in the mortgage broker’s interest for you to take on more mortgages as they “sell” more then!

Maybe speak to an IFA about your future financial plans and see what they recommend?

I'm an accidental landlord after I moved area to be with my now DH and rent out my former home. I have good tennants however there's always something that needs replacing or repairing and they only do the bare minimum to keep on top of my once pride and joy garden. My DH and I are now looking at buying our own home and because I already own a property I'll be looking at paying 5k stamp duty instead of £500 . Truth be told I'd love to sell my other home but I'm to soft to tell my tennants to find somewhere else to live but if they decide to move on the house will be tidied up and put on the market within a few weeks.

I'd inclined to keep your home, put a mortgage on it so that can fund your new place.

Would that be enough cash to buy outright if you mortgage your current home at a 75% loan to value?

However If you use that as a deposit and still require a mortgage you will need some income and if you've only just rented it out you don't have a tax return for it. They may not include the rental income for your new mortgage..

I'm a LL so love property but some of my friends who have been in the same situation just sell up after a couple of years as they don't want the hassle

Only if you have spare savings to cover boiler replace on both houses at the same time roof on both . Money if no tenant for 1 or 2 months.
Go for the nice house now for you to live in and no stress.

What if your tenants don’t pay the rent? You’d be in arrears in both mortgages. Or what if there’s a big gap between tenants?

Both my DH and myself have been landlords. His tenants stopped paying and we had to evict them. We never go the rent arrears back.

My tenants have been great, but the boiler kept playing up. It was a nightmare getting a plumber at short notice and negotiating access to the property. In the end I replaced the boiler (£2K). My tenants asked for a month’s free rent as they had 4 weeks of temperamental heating/hot water while we resolved it. They wanted a new front door because the old one was draughty (£2K for a new one and again the hassle of negotiating access to the property.) The fridge kept frosting up so they asked for a new one.

Also, between tenants I’ve to paint the whole house and replace carpets. I keep the rent low so that the tenants stay put as I couldn’t afford to have the house empty.

The mortgage advisor should be disbarred for this advice. People with no savings cannot be landlords, as others note what will you do if repairs/new boiler needed? Can you afford a void between tenants?

Do wonderboy's calculations include all the insurances, (buildings, contents, rent guarantee, malicious damage, legal expenses) agents fees and the referencing/inventory/agreement fees, which will have doubled now that you can't charge the tenants for them? Plus tax if applicable?

I very much doubt that the sums work out unless the two bed terrace is in Westminster.

Wow, thanks so much for your thoughts everyone. After all your responses I don't think either me or DH has the temperament to enjoy being landlords. It sounds like you need to be methodical, assertive, scrupulous... we're scatter-brained softies really. And the thought of tax returns makes me break out in a sweat. And you're right, I'd underestimated the safety net we'd need for things going wrong.

So funny all the mentions of boilers. Coincidentally, ours went on the blink today. Think it was trying to tell us something.

I think we'll sell our house, get a mortgage on a larger one, and set a chunk of money aside in an ISA or something instead. That seems sensible.

Thanks so much all.

Capital Gains Tax is payable if you own more than one property, when you sell, and it's a big chunk. So probably worth bearing that in mind too.

@TheArtfulScreamer1. Do you like your tenants enough to effectively lose £4500? Do you think if they got offered a rent free home they’d say ‘No, couldn’t do that to our lovely landlord? You’re not thinking straight. Give them a good long notice period but tell them they can go sooner if they find a place and give them a good reference, it’s goid to treat them kindly, it’s insane to
Pay an extra £4500 stamp!

@Bagger288 good decision for you guys. What the mortgage provider said would be good for some people, but probably not you guys. However. Think long and hard about moving out if the city because moving back is pretty much impossible on a low wage and especially once you’ve had children and it’s HARD to not be able to live in the city if you find a more suburban/rural lifestyle really isn’t your cup if tea. I know city life can feel
Too busy, too crowded and do your head in, but living in the ‘burbs has plenty of downsides too.