Renting out current house rather than selling

[wonderings2]

We're currently in a small two bed house, DD (5) goes to school slightly out of catchment in a village about a mile away. We would like to move into the village or at least closer to it (we will need to move before DD goes to secondary school as the catchment secondary school is terrible and we would love some more space)

We've spoken to a mortgage advisor and they said its viable financially for us to take equity out of the house and rent it out using a let to buy mortgage. We would be able to buy a 3-4 bed house in the village and still have a manageable mortgage. The rent would more than cover the LTB mortgage.

The main reasons behind renting out our house is so there would be no chain (houses in the village typically sell very quickly) and as an investment later on, DD is due an inheritance in a few years that would clear the mortgage completely.

Is this a stupid idea, am I being greedy?

Has anyone done similar?

The rent is taxable- are either of you not basic rate tax payers (who get some relief)
You probably also need at least 30% deposit- do you have that (ie can you afford to only take 70% BTL mortgage as well as deposit for 2nd home)
You will pay 2nd home owners stamp duty- you can calculate that on line
CHT when you sell.
You can never count on a inheritance (my DBIL has paid out £1.2 million in care fees for his DPs )

Thank you, I didn't know about the tax - I'll have a read up.

Yep the mortgage advisor did all the sums including the extra for stamp duties and we'll be leaving about 35% in the first house (possibility more depending on the price of the next house)

It isn't dependent on receiving inheritance thankfully, it would be a nice bonus though.

No that's fine, that's why I asked for people opinion's 🙂

Last time I checked in my area (and things do change quickly so I may be wrong), house prices were steady or falling slightly, while rents are rocketing. By increasing the supply of rented accommodation and reducing the supply of houses for sale, you are balancing things out IMO, so if that solution works for you then don't overthink it. You could always sell in a couple of years' time.

Having said that, I wouldn't fancy being a landlord personally, as it sounds like a lot of hassle, even with a managing agent.

We've done this but prepare yourself for bad tenants and make sure that you can afford to have no rent coming in, for both void periods and if/when a tenant doesn't pay.

We did this. We wanted to move into a city to be closer to work and secondary school my son had a place at. The city is the type where properties fly off the shelf at over asking price still! So as a chaim free buyer we were attractive buyers.

We always planned to move back to what we thought was our forever house! But actually five years later when our (one very good tenant) left to move to another area of the country we realised our life was where we were now and sold up then again, with no hassle as chain free.

If you can do it and the maths works then go for it.

I think (honest opinion) you should let another family buy it.

Are you allowed to use your DDs inheritance to pay off a mortgage for a property in your name? That surprises me.

The downside of being a landlord is if there are any void periods, you would have to cover two mortgages. You can get landlord insurance that will cover certain circumstances but this is an additional expense. You also have to do repairs etc that you might not bother with in your own home and in some cases stump up additional expenses that as a home owner you may not bother with.

If you get nightmare tenants it can be difficult to evict them, and the government has reaffirmed it's plans around S21s, so possibly it would get even harder in the future.

If you've never previously had a desire to be a landlord I'm not sure that it's a good time to become one. If it's something you'd considered previously I would look into it with both eyes open!

I don't understand - why don't you just sell your house and buy a new one using equity from the first as a deposit?

And what's this about using your daughter's inheritance to pay off your mortgage??

We’ve had two buyers plan to do this, and we accepted their offers. However, both pulled out as the numbers looked good on paper but did not stack up in reality.

The mortgage adviser won't have the rental value though- the mortgage company do that and that is what informs the loan amount plus your tax rate plays a part.

Example £435k purchase, 1.51% mortgage (2022), rental they said £1,900 but in reality they rent for £2,200. Most they would lend was £297K. Mortgage amount is £468 a month. That was the required affordability for a BTL.

Another option... sell the house at auction? It's quick, and any reduction in selling price might be offset by not having to pay tax on income and capital gains, and pay an agent to manage the property.

I missed the part about using your DD's inheritance. That does sound iffy (more so than renting out a house I'd say!). You say that your plans aren't dependent on the inheritance, so I would work out the numbers without including it.

We did this. It enabled us to move quickly, no chain, probably a better price in the one we bought. It was security too in case the move (new town) didn’t work out. (We won’t ever move back now though).

Financially it’s break even at best - I added it up yesterday and after 4 years I am £1,000 up. That’s taking into account the extra interest i’m paying on the new house because we split the equity between the two houses. This is despite the mortgages being fixed on low interest rates, no tenancy voids, just the odd repair. That’s not including any mortgage repayment by the way, before people say someone else is paying my mortgage off. That £1,000 would be swallowed up fast when the house next needs some decoration and carpets.

The reason we make little money is because of the tax. You can make a loss after the mortgage and still pay thousands in tax, if you’re a higher rate tax payer. We also have a managing agent so they are a cost, but they keep things professional so I’d not be without them.

On top of this we paid an extra £15,000 stamp duty. We may or may not be financially up after we eventually sell it (net of capital gains tax of course).

It also was not nice at the beginning thinking about people in MY house, potentially messing up MY house. It doesn’t bother me now, but a sale is a cleaner break. I’ve also got to evict a family at some point when we sell it, unless they happen to leave.

Law changes are making it harder too.

All in all the tax man is the only one who’s benefitted. I wouldn’t do it again.

We rented out our only house for several years.

It is worth thinking about the extra checks a rental needs, including the in-depth electrical survey.

Also that you need a decent slush fund as things need replacing immediately in a rental house.

If you do it take out very good insurance deposits are very limited and don't cover much if things go wrong.

If you need to evict your tenants that can be expensive and difficult particularly if they have dc.

We were lucky and it worked out well for us, we even sold to our tenants but I would plan to be able to manage the worst.

Thus was a mistake, I meant to type DH not DD 🫣 and I can't work out how to edit the original post.

We wouldn't spend DDs inheritance- I agree that's awful 😞

Thanks for clarifying @wonderings2 , that makes much more sense! 😉

We’re unintentional landlords - bought our first place together (small 2 bed flat in London) and in 18months later we moved to the US for a job fully intending to be back within 3 years, so rent the flat then sell when we return and buy somewhere bigger outside of London to move to

except we ended up staying for 10years and bought a house there, sold it when we moved home and used the proceeds to buy a house to live in in the U.K., super fortunate not to have to sell the flat.

we’ve also been very fortunate with tenants, had the same family for 8 of those years and we kept the rent the same the whole time because they were tenants worth holding onto. They moved out of London and we decided to carry on renting our flat, currently have two junior doctors sharing it. Rent just about covers mortgage, doesn’t cover ground rent, management fees, work on the flat itself (we took the break in tenancy to replace the bathroom and kitchen) and eventually hoping buying share of freehold. But we’re under no illusions that in the meantime someone else is paying our mortgage on it and in 4 years it will be mortgage free.

On a personal level I’m ok with owning one extra property in an area where there is a lack of rental properties - our tenants had applied for several other properties but there just aren’t enough. We charge a reasonable rent and if our current tenants (who are ace) want to stay another year I’d happily freeze the rent to keep them. But to be honest it’s mainly selfish reasons - I am a freelancer in the creative industries so this flat is my pension (I don’t have one otherwise) and we have teenage kids who may well want/need to move to London on super low salaries with massively increasing rents and if we can therefore help them with subsidised accomodation then great.

decide what works for you and your family. I don’t agree with landlords owning huge swaths of property that could be sold to families and I also hate management agencies with a passion - I manage our flat and I go above and beyond to make my tenants feel looked after and to keep maintenance up to scratch because frankly the flat is my investment. I’ve been burnt by shitty management agencies as a tenants myself so I don’t think they’re worth the extra % at all

Things to be aware of. Being a landlord is a fool's game now. Read about section 24 (taxing rent and ignoring finance costs), abolishment of section 21 through the rrb (so you could end up with unsociable tenants trashing the house and unable to get them out without going through the courts), courts workload hence you would be waiting years for your slot, mould, anti landlord venom, shelter, crisis and everything they're campaigning for which is making landlords flee and making life worse for tenants. Don't do it.