Feeling terrible

[Northernparsley]

Just found a house and had an offer accepted - yay! We accepted an offer on our current property in September and our buyers have been waiting for us to find somewhere. In a meeting with our financial advisor today he said that as we are buying a much cheaper property than originally envisioned (a renovation project instead of the finished article), we could afford to buy the new property, convert our current house to a buy to let and still have enough money to do what we want to the new place. This makes us fully in control of the buying process without unforeseen hold ups and very likely to make the stamp duty deadline. If we don’t make the deadline it will cost us around £20,000 extra. It was a complete curveball but having done all the sums makes complete sense.

Decision is therefore made but I feel like scum. We’ve effectively strung our buyers along and then dumped them now they are of no use.

I feel like the worst person in the world right now - does the guilt subside?

Do you want to be a landlord? I get the wanting to meet the stamp duty deadline but if it wasn’t for that, would you want to continue with the tie of your old property & the cost of its maintenance alongside a renovation?

If it’s a done decision, then you’ll just have to make peace in your head. Yes, you’ll really upset your buyers. I’d be heartbroken, particularly as I imagine they are also want to beat stamp duty.. but I’d also get over it. There are worse things in life.

Not that it makes that much difference, but isn't the max stamp duty saving 15k? Because there is nothing payable up to 500k, but then there will be. 15k is of course a massive saving though!

Moirasroses has it though, do really want to be a landlord?

Thank you @MoirasRoses. Good question - My husband has previous experience in letting property and is totally unphased by it.

It’s the emotions of it for me. House buying is such an ugly process and despite approaching everything with the utmost integrity to date, I feel we are letting ourselves down by operating in this way. Feeling like the cat who got the cream whilst our buyers are left with nothing to show for their patience. Perhaps I should blame Rishi rather than shouldering the burden!!

Like you say, worse things in the world...thank you for your reply, it is really appreciated.

@fourmonthstogo you will be right with the calculations I am sure - not my area! It will be the maximum. Can cope with the landlord bit, just need to take a walk in the fresh air tomorrow to appease my guilt!

I wouldn’t want to take on both a renovation project and being a landlord at the same time. What if your new tenant doesn’t pay & the renovation runs over budget? Can you still afford it then?

I’m aware lots of people do exactly this. But it’s not for everyone.

Your Buyer will find a new property. Yes I would feel a little guilty at first, but ultimately they will move on.

Do you not still have to pay the second home SDLT surcharge?

Just what I was thinking cloudchaos

Yeah you've really let down your buyer - in fthis situation (because they wer so good and patient) I'd offer to cover their costs if they've spent on survey and solicitors - I think it's the only way for you to feel less guilty and for them not to feel like mugs or possibly devastated if they loved the house.

As you now have two properties this will have stamp duty and capital gains implication. Have you factored that in?

I think you’ll have to pay an additional 3% in stamp duty across the value. Capital gains could become a massive hit if predictions that Rishi Sunak will increase the rate are right. Many landlords are selling up because the tax regulations have changed drastically over the last 3 years making it a real struggle. It is the policy intent of the government in a bid to increase supply of houses on the market. The sad thing is that it hurts small landlords rather than the ones with big portfolios of properties.

My advice is before you do this, research the tax implications, ongoing commitments, are likely future changes in the rules governing buy-to-let. It’s not simply a calculation of the rent you will receive and mortgage payment. Tax is now charged on rental income rather than net profit. That is so crazy but that is what it is because the government has a clear policy intent for that market.

Your integrity seems to have fallen by the wayside. At the very least pay any costs your buyers have incurred. Just because you may gain financially now doesn’t mean you need to keep your existing house. I hate the trend to only see property as a financial instrument.

@Sameolesame the taxing of the whole of the rental income is ‘not crazy’ it simply makes landlords taxable income equitable between those who have financed their property vs those who haven’t. The issue with BTL has been twofold - it had a negative effect on the housing market by fuelling an unsustainable demand in property which was then financed because there was no incentive to not finance them (as mortgage payments were deductible from taxable liability). Secondly, as the demand for BTL was largely at the more affordable end of the housing market, there was little opportunity for 1st time buyers to get a foothold. And of course there is always a moral argument on MN about whether or not it is fair for a tenant to be effectively funding a landlords capital growth and paying off their mortgage which was in turn subsidised by the taxation system The changes to the taxation has meant that there are more properties available at a more sustainable level, and now there are less people thinking this is an ‘easy way to make money’ builders have had to actually consider who is actually going to buy my properties if I just build box after box of cheap flats. Hopefully it’ll also reduce the number of shitty landlords who take no responsibility for renting poor quality homes to their tenants at maximum rent. Only time will tell I guess.

Op - you might want to consider setting up a company which will own the property and through which you operate this and any future BTL’s as you will pay corporation rate levels of tax. You will also be able to offset future running costs to a higher level depending on the work required. However following the recent comments by the chancellor these rates are very likely to rise to those of personal taxation levels. Still food for thought. Good luck, and as a pp said, if you want to feel less guilty about your buyers, refund their expenses incurred to this point.

A friends parent's are in court for the 3rd trying to get control of their buy to let house back - no rent for a year and the place is trashed. I did it years ago for a short while but with the rules now it would just be too risky for me. I think if you do do this you should pay any of your buyers losses, probably not legally but definitely morally.

That’s a really shitty thing to do to your buyers, as you know. As others have said, the least you can do is cover their costs incurred to date.

I wouldn't do this. Capital gains tax for one thing plus having to do a tax return every year. Also the huge hassle and responsibility that comes with being a landlord. Many landlords are selling now as it is isn't worth it. Legislation has changed in the last few years and more changes are coming. These are making life harder and more expensive all the time for landlords.

I should also add that I do think this is an unkind thing to do given that they've waited. You don't need to. People are just seemingly very money oriented and care little how their behaviour affects others. They will probably be devastated, I actually think we should be like Scotland where it is harder to do this to people.

It’s crazy because there’s no other business where you are tax on revenues. It’s always profits.

I understand the policy intent and the reasoning behind it but it is crazy. Also it is having unintended consequences. The landlords with large portfolios are simply hoovering up the properties released by small scale landlords and driving up prices. So first time buyers are not benefiting massively as expected. Secondly, small scale landlords with one or two properties got into the business to secure their retirement. This means that the government is looking at a pension problem down the road.

I don’t want to digress. What I wanted to get across to the OP is that it isn’t as easy as she thinks it is. She must go in with her eyes wide open.

As a previous poster said, factor in problem tenants and life could quickly become a nightmare.

Compensate your buyers. There is a thing called karma.

@Sameolesame I do think this is not entirely digression but maybe a useful to the overall discussion for the OP. The issue has been that landlords have not actually been running BTL’s as a company but getting on some sort of ‘get rich quick’ bandwagon that they may or may not declare on a tax return. There has been so much talk about pensions in the last decade it really is a choice to stick your fingers in your ears and only follow the advice of a friend of a friend of Auntie Doris on FB whose nephew ‘has made a killing’ on BTL’s and not consider any other method of funding retirement. The regulations in the rental market have been entirely necessary and been fuelled by a glut of landlords who simply don’t consider the ongoing long term costs of being a responsible one.

If you don’t try and do everything with a BTL portfolio with minimal cost there is a viable business if set up as a company (properly) and with a good relationship with local letting agents.

A terrible way to treat your buyers. Please reconsider and put yourself in their shoes. I could never treat people like this for my own financial gain. I think you need to listen to why you feel terrible.

@HappyChristmasTreeRex

I should also add that I do think this is an unkind thing to do given that they've waited. You don't need to. People are just seemingly very money oriented and care little how their behaviour affects others. They will probably be devastated, I actually think we should be like Scotland where it is harder to do this to people.

This exactly. I think what you’re doing is pretty shitty.

^
Agree

I think what you are doing is downright wrong. You have buyers who have waited for you, will be excited about buying and now you think keeping the house as a rental is the way to go

Put yourself in their shoes, how would you fee, if this was done to you? It’s just nasty. You have no morals if you do this

Why not sell the house and just take on a smaller mortgage and save?

It’s all very well saying your husband has been a landlord before but in today’s economic environment, which is predicted to get much worse you could very well end up with tenants who don’t pay, could you afford that ? And bills to get them out?

If you do back out if the sale shame on you.

I wouldn't want to stretch myself in the current climate a d renovations always cost more than you envisage!!!

In the last few years the amount of profit in being a landlord has dropped massively and the responsibilities and costs gone up. Plus you only need one bad tenant to cost you £££££££££££££££

Are you screwing your buyers out of the stamp duty holiday too?

Decision is therefore made but I feel like scum. We’ve effectively strung our buyers along and then dumped them now they are of no use.

If decision is made, why are you posting?