Keep our house and buy new home

troutman
troutman Posts: 54 Forumite
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in Mortgages & endowments
We are exploring options of keeping our house and buying a 2nd home.
The ideal situation would be to rent our home (currently valued about £625k), rentable value about £2000 and move to a new home, value about £750k my salary is £86k + £3k bonus. We have about £400k equity in our home with about £185k currently outstanding on repayment. Would there be any possible options available to do this?

TIA

Comments

  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    You do realise that the stamp duty payable on the second home purchase is going to be £50k. Going to take a few years of letting to recover that amount.

    £24k rent on £625k value is only a 3.8% yield (before costs and tax). As an observation is this a good property to let as a business venture?
  • troutman
    troutman Posts: 54 Forumite
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    edited 9 October 2016 at 6:33PM
    Thanks for your thoughts, we want to move anyway as we need more room so accept the daylight robbery moving tax is unavoidable. This isn't a business venture as such, its more about long term retirement not short term income/rental gain. What would you advise?
  • mrginge
    mrginge Posts: 4,843 Forumite
    troutman wrote: »
    Thanks for your thoughts, we want to move anyway as we need more room so accept the daylight robbery moving tax is unavoidable. This isn't a business venture as such, its more about long term retirement not short term income/rental gain. What would you advise?

    Well if it's long term retirement, 40% tax relief on pension contributions would seem like a sensible place to start....
  • Pixie5740
    Pixie5740 Posts: 14,515 Forumite
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    edited 9 October 2016 at 7:42PM
    The additional 3% SDLT is completely avoidable by selling your current main residence rather than hanging on to it.

    Letting property is a business and should be treated as such. Rental yield is important, banking purely on capital gains is risky.

    You'd need to leave (at least) about 25% equity in your current home if you want to let it out but need to release equity to fund the next purchase. Do you have any other savings or just the equity in your home?

    The rent will need to be 125% of the mortgage payments although some lenders are asking for 145% these days. so that means your monthly mortgage payments on the let property would need to be between £1600 and £1379 a month maximum which could mean releasing less equity than you'd need to fund the new home.
  • Mr.Generous
    Mr.Generous Posts: 3,368 Forumite
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    as a business proposition the £50k stamp duty kills it dead. Buildings and tenant insurance plus usual costs as a landlord (tenant finder, gas safety, inventory) are going to push you into year 3 before you get to breakeven. That's if its occupied all the time. Sell it and buy whatever you can get in the lower stamp duty ranges if you want to become a landlord, yield will be higher.
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
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    Yep, if you want to be a landlord, what's so special about your current house ? Seems somewhat random to pick that one, its one heck of a coincidence it's your best choice for rental !!

    You'd likely be better off with 2 smaller houses. Spread the risk, lower SDLT and since being a landlord is all about profit, starting off with a completely avoidable maybe £20k loss doesn't seem like the smartest move.

    Though I wouldn't be a landlord anyway, if you think property is where its at, put the money in investments that are property focussed where you can shelter them from taxes (including capital gains) don't get tied up in the legalities and hassle of being a landlord , dont have vacant periods, ongoing costs, tenants that trash your property, and so on.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    troutman wrote: »
    This isn't a business venture as such, its more about long term retirement not short term income/rental gain. What would you advise?

    Letting is a business it's not an ATM machine. Can be highly profitable. All you need is the tenant from hell and you'll soon be regretting your decision.

    How comfortable would you be with £935k of debt. Interest rates are not guaranteed to remain low indefinately.
  • anselld
    anselld Posts: 8,277 Forumite
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    Thrugelmir wrote: »
    You do realise that the stamp duty payable on the second home purchase is going to be £50k. Going to take a few years of letting to recover that amount.

    £24k rent on £625k value is only a 3.8% yield (before costs and tax). As an observation is this a good property to let as a business venture?

    Totally agree with Thrugelmir.
    3.8% is a pathetic yield to start with and will be further decimated by finance costs especially when the tax changes for BTL kick in.

    Halve your SDLT bill by selling your existing property. Invest the capital released in some other way, stocks, pensions, etc.
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