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Advice re: renting out a property

1865
Posts: 5 Forumite
Hi all,
I appreciate this may be complicated but if anyone is able to offer advice that would be great.
Me and my wife own a property and the mortgage is about £110,000. Sadly we are in negative equity with the house valued at £100,000 and in the current market we'd probably get an offer of less. The mortgage is £526 per month.
I have come into a inheritance of a third of a property which was my childhood home. I have reached an agreement to purchase this property for a fee of £100,000. Minus my share the total is £66,000 with the addition of me having to pay £813.96 Council Tax arrears plus conveyence fees.
I am able to obtain a motgage for the amount of £80,000 assuming a propert value of £100,000 with monthly mortgage payments.
It is my intention to move properties and either sell/rent my current home. The way the market is I am thinking towards renting out for the next couple of years, doing the work on my inherited property in order to increase the value and consider the remortgage so that I can sell my current property and absorb the negative equity hit. Then, when the time is right for me to be able to cope with the loss on my current property, sell it. My current property sits in the £550-575 per month bracket.
Would anyone have any ideas of the tax implications and anything else I need to consider?
Expenses
My rough maths is my outlay would be as follows (per month)
£336 mortgage - on the new property
£526 max mortgage on my current property
Building insurance on current property (£20 per month)
Tax - ???
£882 plus tax
£800 initial outlay to get the property to a good rental condition.
Cost of repairs - I am able to cover these as have tradesmen available who will do work for me.
Rental income - £500-575 per month.
I would appreciate any assistance I am a reluctant landlord and my intention is not to make money (good job) but to live in my childhood home and get by financially. I have been in contact with my mortage company who will consent to me renting out with no additional fee.
If you need my financial circs my income is just over 29k with overtime available. It is a secure job and the money will increase as my service increases. My wife will also be self employed when we move as a childminder and has already got the qualifications and the demand to bring in an income. She does draw a small wage additionally elsewhere but that job may end.
Any advice would be appreciated.
I appreciate this may be complicated but if anyone is able to offer advice that would be great.
Me and my wife own a property and the mortgage is about £110,000. Sadly we are in negative equity with the house valued at £100,000 and in the current market we'd probably get an offer of less. The mortgage is £526 per month.
I have come into a inheritance of a third of a property which was my childhood home. I have reached an agreement to purchase this property for a fee of £100,000. Minus my share the total is £66,000 with the addition of me having to pay £813.96 Council Tax arrears plus conveyence fees.
I am able to obtain a motgage for the amount of £80,000 assuming a propert value of £100,000 with monthly mortgage payments.
It is my intention to move properties and either sell/rent my current home. The way the market is I am thinking towards renting out for the next couple of years, doing the work on my inherited property in order to increase the value and consider the remortgage so that I can sell my current property and absorb the negative equity hit. Then, when the time is right for me to be able to cope with the loss on my current property, sell it. My current property sits in the £550-575 per month bracket.
Would anyone have any ideas of the tax implications and anything else I need to consider?
Expenses
My rough maths is my outlay would be as follows (per month)
£336 mortgage - on the new property
£526 max mortgage on my current property
Building insurance on current property (£20 per month)
Tax - ???
£882 plus tax
£800 initial outlay to get the property to a good rental condition.
Cost of repairs - I am able to cover these as have tradesmen available who will do work for me.
Rental income - £500-575 per month.
I would appreciate any assistance I am a reluctant landlord and my intention is not to make money (good job) but to live in my childhood home and get by financially. I have been in contact with my mortage company who will consent to me renting out with no additional fee.
If you need my financial circs my income is just over 29k with overtime available. It is a secure job and the money will increase as my service increases. My wife will also be self employed when we move as a childminder and has already got the qualifications and the demand to bring in an income. She does draw a small wage additionally elsewhere but that job may end.
Any advice would be appreciated.
0
Comments
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There's a wealth of sources of info to be found. Use it. Remember rents are not guaranteed so calculate on the basis of 10 months rental income per year. Your expenses are not compehensive - landlord's insurance? Is the mortgage calculated on a BTL? Gas certificate? Agents fees? If you don't use agent you still need advertising/ Credit checks; etc, etc
Courtesy of tbs624 (edited):
“Sign up to LandlordLaw or to the NLA/RLA or a local affiliated LL association. Membership fees are tax deductible, and membership will get you discounts on some LL insurance premiums. See if your local Council runs an accreditation scheme for private LLs. Any of these will give you access to much useful info plus appropriately worded documents and notices.
Make sure that your tenancy terms don't fall foul of OFT guidelines - google "unfair contract terms" and "tenancy"
Try Alan Boswell for insurance: others on here have suggested Endsleigh, or use google or RLA recommendations. Compare risks covered as well as premiums.
Read up on your own and your potential T's rights and obligations. Make sure you understand how to deal with tenancy deposits. Have a look at Shelter's excellent website.
Have you obtained Consent to Let from your mortgage Lender? And your Freeholder?
Have you an EPC to wave at your potential T? And a gas safety certificate?
Have you got a tame plumber/gen repairs bod for when things go wrong?
Gather together a folder of instructions for GCH system and any appliances provided, how to work alarm, what days rubbish/recyclables are collected, emergency contact no.s for repairs etc. Note down the exact colour/brand of emulsion so that T can do minor touching up of any marks. Note who the current utility suppliers are and ask the T to let you know if they switch for a better deal so that you know who to contact when the tenancy ends.
Protect yourself by doing a proper inventory which describes the property and F&F in full detail. Include photos. Google "inventory clerk" and pull up some examples of how to do this.
Properly vet your potential T - you can use a third party referencing agency for between 15 and 50 quid. It can be worth seeking refs from the LL before their current one, who may be simply keen to get rid from their own property.
Remember that although it may once have been your home, you will be handing over "exclusive occupancy" of the property to the T in return for that rent and they are entitled to view it as *their* home, without undue interference from you as the owner.
Be businesslike but fair, and your T is likely to respond in kind, looking after your property and keeping those expensive voids at bay.. "
RLA(landlord’s Association)
NLA(landlord’s Association)
Landlordzone (landlord’s information/advice website + forum)
Landlord Law (Property solicitor’s website for landlords)
The Complete Guide to Residential Letting (book)
HMRC (Property tax)
Deposits(Rules on deposit protection)
Shelter England (tenants’ rights)
Tenant referencing (referencing provider – there are others)0 -
Thanks for the quick reply! Some stuff for me there to look through methinks...
It is a freehold property and I have been adivsed by the mortgage lender that I can rent out this property at no extra cost. I have a builder/handyman avaialbe and a plumber to sort the boiler.0 -
I think you need to see a mortgage broker first.
You currently have a £110k mortgage to add another £100k residental mortgage you would need joint earnings of £60k pa assuming 3.5 times lending.
BTL mortgages rarely go upto 80% ltv these days so the £80k mortgage you are working on my not be available. If you only get 65% then you need another £1k just to fund the buy out then have the extra costs to find.
If you do find the capital to invest then can you cope if interest rates go up? Do you sums with 6% on residental mortgages and 8% on BTL's.
As you need to rent until the property you currently own is worth more then you need to be planning on about a 10 year rental period.
So I'd ask myself is it really worth it? would you be better off with £33k from the sale of the family home and no doing up cash to find or just selling yours and taking the hit for the loss now before it goes down any further and living in the family home whilst you do it up?0 -
Thank you mlz1413,
You are raising some of the concerns that I have. I have gone through a mortgage broker to get the mortgage offer. £100,000 valuation, £80,000 loan. £336 per month on a 2 year fixed. As a result of owning part of the property it is a remortage as opposed to a BTL.
It is going to be tight either way though the property I am due to move into will be worth significantly more. An estate agent valued at £120k as is and there is a comparable 3 bedroom property on the market, same road, less land on the market for £160,000. Whilst I think that is overvalued when comparing the land available and proximity to town centre I reckon once done up I could get it revalued at £120-130k within 2 years. My property has much more land. This lender valued the property at £100,000.
As a result of money being fairly tight I am just weighing up the options. My missus either way wants to move, and the other property would give her space to work self employed from home.0 -
Was giving this some thought last night and wanted to claify:
The broker says the £80k loan is residential because you are a part owner already - but is that taking into consideration you will still have a residential mortgage that has granted permission to let?
I'm still pretty sure to get 2 residential mortgages you will need to show earnings to cover both and the rental income is not classed as earnings.
Hope it all works out for you!0 -
Essentially yes! I've submitted bank statements which indicate that also. My mortgage broker also spoke to the lender about the situation first before applying.
The easy option would be for me to take an offer on my current property then I can just take the hit on the negative equity and refinance accordingly. We've reduced the price on this property and are now getting regular viewings and have had two second viewings. However, it seems to be abit of a long soap opera - even though our current property is more than competetively priced. I suppose it just needs a bit more patience.
We can let, but I could ideally do without the stress of it BUT my childhood property is significantly better than the one I live in now.0 -
Assuming that I am making a loss on the property I am renting out, am I right that I would not have to pay tax on this?
e.g
Outlay
Mortgage £526 + Insurance £24 = £550
Income
Rent £5500 -
Assuming that I am making a loss on the property I am renting out, am I right that I would not have to pay tax on this?
e.g
Outlay
Mortgage £526 + Insurance £24 = £550
Income
Rent £550
you can only offset the interest element of the mortgage against income fior tax purposes. You cannot offset any capital repayment element.
However, there are an whole range of other "eligible costs" that you can deduct from income to arrive at your net profit, upon which you will then be taxed
start reading:
http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_100140270 -
if you do not make a profit then no tax is payable, losses can be carried forward to the following year(s).
as G_M and 00ec25 say there are lots of allowable expenses which include your gas safety cert, smoke alarms etc and lots of rules to know.0
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