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.

Don't do it. Better to put the cash into savings you will make more money and its much less stress. So many existing rules and then new ones coming up with renters reform, possible epc rule changes..renters reform will be particularly bad for student lets as you wont be able to define tenancy periods to match university academic years any longer.

Then after section 21 is banned it would be very hard/impossible to get non-paying or anti social tenants out of your house If they don't want to go.

For HMOs make sure you follow all the rules to the letter or fines are hefty.

Check if your council has a local landlord licensing scheme which will be £xxx per year.

It's so much hassle, we have sold up our rental stashed the cash in savings to set against the low rate outstanding mortgage on the house we live in- only worth doing after income tax as our mortgage rate is so low.

We are then drip feeding savings into isas for tax free future income and will pay off the outstanding mortgage when it expires in 6 ish years.

Savings rates are still good at the mo so invest there and save yourselves the stress would be my take.

Good luck in whatever you decide to do.

....Or alternatively if your mortgage rate will be higher than savings rates then have a less large mortgage....

Thank you! We have been putting the money in savings. The rates were good but I think they will eventually go back down. Lots to consider.

I would say not worth it. Plus don't rent a beautiful home to students! The best tenants are those invested in the area who have good reason to care for their home.

My house in the north was valued at 160k. No interest so I've rented it out £1200pcm! Amazing return but only because I needed to move quickly and I already had a fabulous tenant.

If you want a rental buy a more student type house as well as your new one. Pay less SD on that second home than your new one.

It's a let to buy mortgage, not buy to let. Not sure what the rates are looking like.

Please consider CGT when you selll. If it is in both names, you will want to use both CGT allowances. If the income has only been going to one person, you may be only allowed to use one.

We fell foul of this and it took ages of a very expensive tax accountant and HMRC chatting to sort it out including restated tax returns

But at the same time there might be more cost for wear and tear.

No "might". There will be. I was halfway on-board with your idea OP until I saw you wanted to let to students. That's a full-time professional job IMO, not just a case of sitting back and raking in the cash. I know two people who tried it, both came to regret it.

Sell and get a capital sum is my advice.