Is renting our house out and buying now a big gamble?

kcmatt79

Hi

I would like people's opinions if possible on our current situation:

We have a £50k mortgage on our house, currently worth about £150,000 (at worst).
We are lucky enough to have a tracker mortgage, meaning our monthly payments are currently £223 and are due to fall again by around £30
We want to upgrade soon as have outgrown our two bed terrace

Because of our fortunate situation with our mortgage, we have been considering renting this house out and buying elsewhere. We could charge around £800 a month for this house as it's very near town centre.
We would then receive around £550 income on this.

I forsee us spending around £220k on a new house (mortgage around £650). So income from renting would mean us only paying around £100 a month.

But, I realise that it is also a gamble because of the following factors:

1) The mortgage rate could increase at any time
2) My salary is good, but I have quite a large debt repayment each month which means I have around £300 a month after all bills/repayments, which isnt a lot if something did happen
3) My partner is only in the 2nd year of running his own business

Now, I've also thought that if things were to get tricky we could sell this house, but obviously with the way things are, it could take quite a while.

Could anyone give me their views on this idea or would it be better just to sell here and buy elsewhere and cut out the pitfalls.

Thanks in advance!

Pssst

My first thought is that you say you could charge £800 pm for a terraced house. Have you researched this thoroughly? surely if anyone can pay £800pm they would be getting themselves a mortgage?

How lucky do you feel?

Nothing ventured,nothing gained and all that !

kcmatt79

Hi, yes I've looked at local prices on our road. It's a very transient community round here, a lot of commuters and students, so houses are rented quite frequently. That's also part furnished, as we would leave a lot of our furniture here.

socrates

[quote=Pssst;18552361_surely_if_anyone_can_pay_£800pm_they_would_be_getting_themselves_a_mortgage?[/quote]

Is this a question or a statement - I see the question mark but ...

Anyway if this premise was true there would be no rented properties.

There are a whole heap of reasons why someone who can afford £800 a month rent - does not buy.

More the point on this post is the positives and negatives of renting out a property for the first time.

On a piece of paper it all sounds good - reality a totally different matter.

silvercar

First question, if you rent your house out, have you got money saved for a deposit on yor new place.

kcmatt79

First answer: no!

socrates

over to you silvercar....

confused31_2

I dont know where you have got your figures from but 650 pound a month on a 220,000 pound mortgage over 25 years is more like 1200 pound a month repayment 900 pound interest only.

i was looking at doing similar myselff you need to aim a bit lower for the house you are going to buy.

silvercar

socrates wrote: »

over to you silvercar....

poisoned chalice?

100% mortgages don't exist so you are going to have to find the deposit for the new place from somewhere. Easiest place is by increasing the mortgage on your existing home.

If your new home is going to cost 220k you will need a deposit of 22k minimum plus money for the move, so you are looking at raising another 30k.

30k+50k=80k so you are going to have to get a 80k BTL mortgage on your current home or apply to your existing lender for consent to let and ask to borrow another 30k.

When considering this application the lender is going to want to know that you can service the debt. A rental income of 800 a month will suffice and the loan to value is OK for BTL (max seems to be about 65% at the moment), but your personal debts and your wife running a new business could make lenders reluctant to lend this amount. I would investigate this first. Try your existing lender, ask for their views on giving you consent to let and whether they will allow a mortgage increase. If no luck then try a whole of market broker who will know which lenders may consider it.

The problem with BTL is that it can be a drain on your finances. Voids cost money as does maintaining your home and the BTL. If lenders can't see that you have the finances to support it, they won't give you the loan.

kcmatt79

confused31 wrote: »

I dont know where you have got your figures from but 650 pound a month on a 220,000 pound mortgage over 25 years is more like 1200 pound a month repayment 900 pound interest only.

i was looking at doing similar myselff you need to aim a bit lower for the house you are going to buy.

That was based on our current mortgage rate

kcmatt79

silvercar wrote: »

poisoned chalice?

100% mortgages don't exist so you are going to have to find the deposit for the new place from somewhere. Easiest place is by increasing the mortgage on your existing home.

If your new home is going to cost 220k you will need a deposit of 22k minimum plus money for the move, so you are looking at raising another 30k.

30k+50k=80k so you are going to have to get a 80k BTL mortgage on your current home or apply to your existing lender for consent to let and ask to borrow another 30k.

When considering this application the lender is going to want to know that you can service the debt. A rental income of 800 a month will suffice and the loan to value is OK for BTL (max seems to be about 65% at the moment), but your personal debts and your wife running a new business could make lenders reluctant to lend this amount. I would investigate this first. Try your existing lender, ask for their views on giving you consent to let and whether they will allow a mortgage increase. If no luck then try a whole of market broker who will know which lenders may consider it.

The problem with BTL is that it can be a drain on your finances. Voids cost money as does maintaining your home and the BTL. If lenders can't see that you have the finances to support it, they won't give you the loan.

Thank you, that is very helpful. I wasn't sure how the buy to let mortgage would work. Our current lender is Halifax, so I will speak to them, but we also have an IFA who is very good and I could speak to him. But that clears up a lot of my questions, so thanks again.