Buy another house but still rent.. are we crazy?

[MadnessMolly]

And would this even be possible?

Long story short- dp owns a house 1 hour away from where we live, I rent my house, saving for a deposit. We moved in together last year, and due to my ds starting high school last September, dp moved into my rented house rather than us move in with him, and has since rented his house out.

Now, we love my house, it's a new build, large garden, drive, basically what we would look to buy, except there are very few around here and they are expensive if they do pop up.

We now have enough deposit to buy a 2/3 bed terrace, which we don't really want.. we need to save for another 18 months ish to buy a house similar to what we are in now, which is fine too. Or, could we buy a buy-to-let now and rent it out? We would then have 2 modest mortgages (£450 pm each roughly), 2 wages, 2 rental incomes and our own rent and bills. Dp gets the mortgage + 30% for his, and we could get at least £700 pcm for the second, rental properties are in high demand here.

Is this mad, would a broker be able to do this for us? I can't see any downsides as my house is on a build to rent development so will not be sold any time soon, if ever.

Thanks

What are you paying in rent at the moment - surely a mortgage would be cheaper? 2 year fix?

Its quite an inefficient way of doing things as any returns from your btls are taxed and your rent has to come out of taxed income. I would also check the net return you expect on the new property. After financing costs (btl mortgages are quite high unless your deposit is large) and maintenance I would be surprised if you would get much of a return on your deposit , other investments may be better

Thanks, I'll speak to a financial advisor about how best to invest some of our deposit as we aren't in a rush to move. DP bought in an up and coming area so the value is rising, we are lucky to be in secure jobs and no rush to move.

Have you approached your landlord about buying the property you live in now?

Hi changing, the houses were built by a large developer to rent only - none of them are for sale. (Off topic but I think it's great, much higher quality houses than usual for private rental, and no stress wondering when they will be sold!)

Where is the deposit coming from? How much is from your savings and how much from his?

Things I would consider:

1. You aren't married, have you thought about buying on your own? I would be ensuring that I had a back up plan for any relationship ending and retirement. He owns his own house, therefore has his own security, so should you.

1. If you buy with him (as an existing property owner) you will miss out on 1st home buyer allowances - e.g. stamp duty, low deposit, higher LTV mortgage etc.

1. You would need a BTL mortgage for a rental

1. You would need to have sufficient income to qualify for the mortgage whilst also having rent as a financial commitment in the short term. This will potentially be offset by rental income but you need to factor in vacancy, repairs, damage, insurance, income tax etc. It is presently almost impossible to remove difficult or defaulting tenants - don't buy anything with a tenant in situ even if it looks cheap especially if it looks cheap.

1. As you have a child, do think about inheritance should you marry - if you want to ensure any of your estate goes to your child you will need to seek legal advice. Too often, a later spouse inherits all and children are left with nothing.

I wouldn’t, having a buy to let can come with all sorts of issues - tenants not paying, issues to resolve/fix, dealing with letting agents etc. It’s not necessarily just a simple way to make money.

Plus you’ll have all your solicitor/estate agent fees to pay on the buy to let, and what if for some reason it was left empty without a tenant, things can change.

Would this be a long term plan? Is the deposit joint or is it your deposit? If you’re not married you need to make sure you’re both protecting your assets, if your DP owns his house he’s still always got that if something went wrong, what protection do you have?

Btl stamp duty is high.tax relief is low.

You really need to do this maths tbh.

To qualify for a BTL mortgage you have prove you can afford the mortgage even if there is no rent coming in.

This is how it was 8 years ago when I applied (post credit crunch). Lenders may have become more lenient now - but if not this may be your limiting factor.

All good points, thanks. I'm very aware of the fact he has an asset already and I don't, we are planning to get married but obviously that means nothing until it happens and a decision will need to be made about his house and how to handle that fairly. I'm good with finances, but not knowledgeable about the ins and outs of mortgages or BTL's. I can bookkeep and have dealt with all the HMRC side for his rental property. Definitely need some financial advice! I probably sound a bit clueless, lockdown threw our plans out a lot, we didn't intend to live in this house together or for him to rent his out, and we have both had promotions and are earning more than March 20, so things have changed a lot and quickly, we need to take stock.

Why doesn’t your DP sell his house, then you buy a bigger house together?

I’d be very surprised if your proposed “buy to let to rent” approach was profitable, unless you pay tax at a very low rate. Have you actually done the sums on this?

As pp suggested, if you sell DP’s property and take the capital gains can you then afford the house you want to buy jointly? If so I would definitely go down that route rather than complicating matters with multiple btls. It also eradicates the additional stamp duty you’d have to pay on any purchases.

I don’t think btl is worth it anymore. We have a couple and in my opinion it’s too much risk and regulation for to little reward. We will sell ours when the conditions are more favourable.

@TheMagicDeckchair surely selling conditions are favourable now? I thought it was a sellers market at the minute, DH and I have interest in the property market in three towns/cities and they’ve all gone crazy since the first lockdown ended

@ComeTheFuck0nBridget the flats are affected by the cladding scandal, so are pretty much unsellable right now, unless we sold at a huge discount. Fortunately we have been able to do product transfers with our existing mortgage providers.

They do make a small return overall but I’d rather not have the hassle and have the equity and invest it elsewhere, or use it in my own home. In OP’s situation I think it makes most sense to use equity and savings to buy the house they want to live in. Once that’s done they can look at additional investments such as property, if they have the means and desire to do so. Tax regimes for landlords are less favourable than main residences, ie you are not taxed on capital gains on your main residence (at the moment anyway).

Definitely just wait it out and buy your own home in 18 months time