Keeping current house as a rental and buy an additional property to live in

[peacefulworld]

We have been trying to upgrade to a bigger home as the current house, a 65 sq metres end of terrace is too small for our growing family now. We want to figure out if it’s worth to keep the current house as a rental property and buy another house to live in.

The current house although small has 3 reasonably sized double bedrooms. The footprint of the house is more like a 2-bed house with the 3rd bedroom over a drive-through arch which leads to the parking area. It has 2 parking spaces and a 3rd car can park in front of one of the spots adjacent to our fence. We live in a town which has a university in the Cotswolds and the rental market is very busy here. We have had two agents around to value our house. One smaller agent priced it at £290000 for sale and £1250 if it’s rented out, the other priced it at £325000 for sale and £1400 for rental. The house being conveniently located within a 15/20 min walk of both the town centre and good local schools/university would be very popular and the agents have confirmed this. The house was purchased at £210000 7 years ago so if it’s sold for either of the estimated prices, we would have made a good profit. The house still has a mortgage of £130000 at 1.19% rate which will expire in August 2026. I have spoken to the lender and they are happy to issue consent to let. I presume I will need to convert it to a buy to let once the current mortgage term ends. I am a basic rate earner and my husband is a higer rate earner. I read somewhere that there is a legal procedure which will allow me to have all the rental income even though the house is jointly owned by both of us.

We have a house in mind on the market which we would like to offer. It’s been marketed at £425000. I understand that by keeping the current house, we will need to pay the higher rate of stampduty.

My reason of keeping the current house is that I will have some rental income from it when I retire or my children can live in it if they need to.

Is it worth it? I can always sell within 3 years and claim back the additional stamp duty if I don’t like being a landlord after having letting it out.

How are you funding the deposit for your prospective new purchase? Are you re-mortgaging current property? You’d need to change to a landlord mortgage anyway before you rented it out.

Are you planning to manage the rental yourselves or will you get an EA to do this? As a landlord myself, I now manage my properties myself - in the early years, I used a letting agency - they were expensive and to be fair not that great.

You mention you are doing this for rental income? How much are you expecting per month? Have you considered that you will need landlord insurance and also a ‘contingency fund’ should anything need replacing?

An example:

Property lets for £1300.
Mortgage - £600
Insurance - £50
Contingency Fund - £100
EA Fees - £150

You are only left with £400 a month and that doesn’t count the fact that emergency works may need doing that’ll be costly…

most people become landlords because they want to invest for their retirements not necessarily for the monthly income.

Is it a rentable house. For example if it is really well done up in a good state with expensive fittings, is that something you want to consider renting out.

Are you in Longlevens? 🙂
I used to let and it was a nightmare at times. Depends if you are happy to be the one to manage or if you pay and estate agent to manage.
You need relevant certificates, change your mortgage to buy to let and be prepared to have spare income for a year repairs. Believe me the tenants will raise anything however small and you have to fix.

Deposit and stampduty for the new house will come from our savings. We have tried hard to save and have put them in ISAs and fixed bonds in the past two years. All the accounts had over 5% interest rates. But the rates are dropping now, that’s one of the reasons we would like to invest in a rental property.

Deposit and stampduty for the new house will come from our savings. We have tried hard to save and have put them in ISAs and fixed bonds in the past two years. All the accounts had over 5% interest rates. But the rates are dropping now, that’s one of the reasons we would like to invest in a rental property.

What is the process by which you can get all of the rental income, even if it is jointly owned?

When you remortgage it will be at 5% or whatever the rates are then, so much higher cost.

i wouldn’t do this, TBH. Too much risk of hassle.

Yes the house is in very good condition. We have just had a new kitchen fitted in October last year with new AEG oven and AEG gas hob. There’s a slim built in dishwasher. I might need to change the gas stove to an electric one as that might be preferable by most people but I like to cook on gas. New flooring.

I am in Cirencester. I want to let to students as the rental income will be higher than letting to families. But at the same time there might be more cost for wear and tear.

It might be needed to register as an hmo for students check local rules

I am doing something similar. If you are married, I don't think you will be able to have the rental income all in your name.

I've had consent to let on a property for the last 7 years and have fixed the mortgage multiple times and have not had to switch to buy to let. So it depends on the lender. I also just took out additional borrowing on the property to buy another.

Also you pay tax on the rental income.

Have you factored in paying 5% extra stamp duty as a you’re buying second home.

If you are going to let it to three students rather than a family, you will have to register it as an HMO. That will mean putting in fire doors I think, also some other stuff.

I read on taxinsider that you can draw up an agreement of the actual allocation of rental income to the owners. HMRC doesn’t seem to mind if the allocation is different to the proportion of ownership. I believe it can be done but I need to do more research.

www.taxinsider.co.uk/how-to-jointly-own-a-property-5050-but-split-rental-income-9010

I am with HSBC. Do you mind sharing who you are with?

Yes that’s why I would like to have all or majority of the income in my name.

Yes stampduty would be £27500 if we manage to buy the house for £400000.

I'm in a similar predicament OP (nice problem to have), trying to decide whether to keep my current property to rent and buy an additional larger house or sell and then buy but plug all my funds into a larger family home. Obviously doing the former means as you've said income from BTL and a nest egg for the future.

Unfortunately the interests rates are high now, this would have been something ideal to do 5 years ago.

Being a landlord is definitely not for the faint hearted and on top of the tighter regulations, problematic tenants are not rare to come across unfortunately.

Also a consideration is if your tenants do not pay the rent or if the property is vacant you need to ensure you have enough to cover outgoings across both properties. I am looking into landlord insurance for this.

The stamp duty refund within 3 years if you sell is a good safety net if all goes to pot.

Lots to consider!

I did this exact thing 6 years ago. Mine was because I had to move for work and a sale fell through last minute. I had no choice really.

I use Openrent to find tenants, really vet them. I have insurance that covers non payment of rent. The mortgage increase has been a bit of a bastard as I remortgaged to get the deposit on the new house. Other than that it's been OK. The 'old' house is our pension.

So we did this but without any expectation of the property profiting month on month. It covers the mortgage, the agent fees and leaves a little for maintenance but I usually end up topping it up. Certainly doesn't ever meet the £2.5k HMRC threshold to pay tax on the income. I actually didn't intend to profit off it month on month- we live in a tourist area and if we didn't rent it out, the person that bought it would have AirBnBed- we check that any tenant is a local person needing a home. Planning on holding on to it for the very long term and eventually selling to pay off our residential mortgage.

Apart from taking phone calls around maintenance issues, we've happily rented it out for 3 years now- 2 different tenants, single women in their 60s who wanted to live in the local town. It's been less work than I thought!

We did the same as you and saved a new cash deposit and fees money.
The double stamp duty stang and I think I'd have to rent it out for 20 years to make enough to earn that back but it feels very long term. I like that we have an asset we could sell that's not our home if we had any issues and failing thing, it makes me feel positive about retirement.

In addition, I love the house, I bought it pre DH and it's my happy place. If anything happened to him I'd probably sell the bigger house and go back and live in it.

So basically I'm trying to say- short term profit, probably not, long term security- much better!

My understanding is that married couple can still do that by drawing up a Declaration of Trust and a HMRC form 17. I need to read more on these.

Considering you will have to pay around 4.5% on the mortgage for your new house (assuming you have a big deposit of at least 40% or likely to be a higher rate), wouldn’t it make more sense to sell this property so as to have the smallest possible mortgage? And to not have to pay the extra stamp duty?

Hi, I wasn’t sure if I understood correctly. Here in the UK you have to pay tax on the whole rental income (except for a few things you can offset, like service charge agent fees etc), but you have to pay tax before the mortgage payment is taken off (then you get a small relief back at the end of the calculation; and it is only a relief at 20 percent, so is really bad if you are a higher rate taxpayer). So depending on house value / mortgage size / rental income then it can be very uneconomic to do.

it is worth working out what the yield would be, after taking everything into account - with some savings accounts giving around 4.6 percent cent, this can sometimes be better than the yield of a rental cottage.

m we stayed in a holiday cottage at Christmas, and I was talking to the owner. The cottage is on the market to sell, as he is only getting a return of 2.5 per cent, which is so not worth it for the amount of hassle it takes…

The aim is to gain an extra property to let out so that there’s a passive income. It’s for my retirement as I won’t have any inheritance from my parents. Or if I need to be cared for then this additional property can be sold to pay for my care. The children can also live in it as renting is expensive. I’ve just spoken with the student renters in my neighbour’s property. They are paying £1500 for the 3-bed house (bills not included). Obviously we need to factor in the tax element and fees for HMO application.