Buying a house together and renting out my sole property

[Babyiwantabump]

How does it work?

Basically I have a house that I bought on my own nearly 18 years ago . So mortgage nearly all gone . I want to buy a house with DP but instead of selling this one and buying a new one I was thinking of renting this one out and using some of the equity as a deposit on a new property in both of our names .

How does it work? Will it affect the amount we can borrow for a new property together having a larger mortgage on this property ?

Is it even worth doing now?

Current home has been valued at about £250k and mortgage on it currently is about £40k

We are looking to buy a new property at the £450k price mark so would need about a £100k deposit which would mean a mortgage of £140 on this house that I might rent out .

I have looked on other forums but can’t quite find much about things like this!

Hope that makes sense thanks in advance

Speak with a mortgage broker. It isn’t a particularly complicated arrangement but they’ll have a good idea of how the figures will stack up and which lenders are most amenable. It will mean higher stamp duty (second home) for the purchase of your new house, and potential future capital gains tax for you; and make sure you ring fence your contribution to the deposit from your existing equity for if / when DP becomes an ExP.

You would need to remortgage your existing property as a Buy To Let mortgage. The rental income from the property will decide how much you can borrow. A mortgage broker can do the sums and let you know how much you can borrow as it varies lender to lender and there isn't a simple formula.

The Buy To Let mortgage will not affect your borrowing power on your new property as the rental income is covering as far as the bank is concerned. So you can still borrow 4.5x (ish) your combined incomes. The main thing will be the higher rate of stamp duty. It doesn't matter that it will be your main residence, you still need to pay the higher rate as it is a second property.

My DH rents out a house, and there are some drawbacks:

• he's taxed on the income in addition to his employment income, so if you're a higher rate taxpayer, you'll be paying quite a lot of tax on the rental income
• he uses PurpleBricks to manage the property. It's the cheapest option as far as I know, but it's about £90 per month and they're pretty awful - he ends up speaking to the tenant directly. You do need someone to manage it though, to arrange the contracts etc
• estate agents charge about £1,000 to find a tenant, which can really add up
• the cost of maintaining the house isn't insignificant, and I'd recommend having 5k-10k in a pot in case anything goes wrong
• things like carpet, kitchen, etc need to be upgraded fairly often
• you'll pay much more stamp duty on your new home

I’m trying to decide whether it will be worth it or not really . I just like the idea of having something that is just mine for purposes of retirement income and inheritance for my children (1 is not DPs others are)

No intention of ever getting married but we need a bigger house and buying a new house this way feels like I will still be a bit more financially secure if anything did happen .

In that case, maybe keeping the house does make sense. I would work out all of the numbers first to make sure you're not going to be too out of pocket or it's not going to stretch your finances too much.

Don’t be a landlord - says a landlord! You are far better off selling your asset and investing the capital - you could even set it up as a trust for your kids if that’s the aim. There’s so little return on rentals now given recent changes in the way profits are calculated for tax.