Buying new house, but wanting to keep existing house

the_salmon

Hi, first post, but a long time viewer of posts. Ive had a hunt for a similar situation to mine but cant find one so here goes...any advice would be appreciated!!

I own a house at the moment but due to a job change I will be moving.

In an ideal world I would like to keep my current house. I think it will struggle to sell at a value that I would be happy with and ive just spent quite a bit of money in improving it.
But I also want to own a house in the new area that I will be moving to so I can live in.

I appreciate I probably need to speak to my mortgage company, and I am aware that I will have to change the mortgage to a buy to let mortgage.
But I don't have any capital to invest as a deposit on the new house.

So am I right in thinking I could look to remortgage my current home on a buy to let, and release whatever equity there is which could then be used as a deposit against the new house???

If anyone has any golden nuggets of advice regarding this then I would love to hear from you.

Thanks

m_13

HMRC use this very example - particularly if you are moving to Holland but it applies elsewhere!- on their website:

Example 2

Mr A owns a flat in central London, which he bought ten years ago for £125,000. He has a mortgage of £80,000 on the property. He has been offered a job in Holland and is moving there to live and work. He intends to come back to the UK at some time. He decides to keep his flat and rent it out while he is away. His London flat now has a market value of £375,000.

The opening balance sheet of his rental business shows:
Mortgage £80,000
Property at market value £375,000
Capital account £295,000

He renegotiates his mortgage on the flat to convert it to a buy to let mortgage and borrows a further £125,000. He withdraws the £125,000, which he then uses to buy a flat in Rotterdam.

The balance sheet at the end of Year 1 shows:
Mortgage £205,000
Property at market value £375,000
Capital account B/F£295,000
Less Drawings £125,000
C/F £170,000

Although he has withdrawn capital from the business the interest on the mortgage loan is allowable in full because it is funding the transfer of the property to the business at its open market value at the time the business started. The capital account is not overdrawn.

Apologies for the formatting; it was a table which has gone awry! The 'capital account' value of your current home is based on market value which it's best to get via an RICS surveyor to avoid any doubt.

Remember that any income you receive from renting is taxable but you can deduct the mortgage interest on the BTL mortgage, letting fees and a variety of other expenditure. Legal fees to convert to BTL are capital costs and can be deducted from your capital gains tax when you finally sell the property.

www.landlordzone.co.uk is a useful resource as is www.taxationweb.co.uk.

QTPie

Hi

Depends on your mortgage company really.

We were recently looking to rent our house out and wanted to release some equity from it (we had about 70/75% equity and, like you, wanted to release equity towards a deposit for a new house). In the end we actually sold (at a reasonable price) and that was less hassle for us...

BUT, I did discover the following whilst looking into renting this place out:
- Our existing mortgage lender (Intelligent Finance) would allow us permission to let (at quite a price!), but wouldn't allow us to release ANY equity. IF don't do Buy to Let mortgages as such.
- I spoke to a LloydsTSB Mortgage Advisor (they do C&G mortgages) and he said they would have no problem giving us a buy to let mortgage and let us release some equity (we were looking to release down to 40% equity, but they would have let us release down to 25% is we had wanted to - our income would have been used to make up any shortfall in the difference between rental income and mortgage repayments).

IF we had gone on to rent out our house, we would have pursued getting a Buy to Let mortgage with LloydsTSB.

How much equity do you have in your house (the one you want to rent out)? You need at least 25% for a buy-to-let mortgage.

Do your sums. Get some quotes on what you should REALISTICALLY rent your house out for and also Letting Agent's fees (since you will nolonger live in the area, you will wnat it fully managed - LA's fees to fully manage are normally about 15% of the rental income). Then allow for PROPER Landlord's insurance (normal buildings insurance will not cover you if your tenants trash the place...). Then allow for any upkeep/maintenance/repairs. Really you want the RENTAL INCOME - LA FEES - INSURANCE and any other COSTS to just cover your mortgage repayments. Does it? How much equity can you release from your house and still cover your mortgage payments? Work all of that through with the BUY TO LET INTEREST RATE which may be significantly higher than you current "ownder occupiet" interest rate...

It is all possible, but you really need to do your research and your sums.

QT

the_salmon

Thanks to you both for this, very helpful.
I think my sticking point will be the value of the house and the amount of mortgage left. I think I have about £64k left on the mortgage but think that at a top level the property may be worth £90k, but I would guess nearer to £85k.
Ive not considered letting agency just yet, I have 1 or 2 irons in the fire in terms of people I know renting the property, however if I was to rent to a 'stranger' then i would probably consider a LA.
I am just starting my research on this as I only got offered the new job last Thursday and have so much to think about, but this has been really helpful. I know through contacts that the rental market is strong with less people being granted mortgages or able to get them, so the demand to rent is high and I see this as an opportunity to try and benefit as much as possible from it.

Caz3121

BTL normally require at least a 25% depost and at a value of £85k you are probably just at that level so any release of equity would leave you needing a mortgage of more than 75% LTV which I think would be difficult to find on a BTL.
Looks on the face of it that you could switch to a BTL but there would be no equity that could be released so guess you are half way there

QTPie

the_salmon wrote: »

Thanks to you both for this, very helpful.
I think my sticking point will be the value of the house and the amount of mortgage left. I think I have about £64k left on the mortgage but think that at a top level the property may be worth £90k, but I would guess nearer to £85k.

How much equity are you looking to release? IF your house is worth £85k (and I think it is always worth working on the pesimistic estimates - much better than being overly optimist and being disappointed).

If you have £64k outstanding on a house worth £85k means that you have 25% equity. To get a "Buy to Let" mortgage as such (say applying for a new one with someone like Lloyds), then you need AT LEAST 25% deposit/equity in the property: so they would not allow you to release any further equity from your property. If you stick with your current mortgage lender, then they are unlikely to allow you to release further equity either (if you want to move to a buy to let basis).

So it is unlikely that you will be able to release any further equity on your property.

the_salmon wrote: »

Ive not considered letting agency just yet, I have 1 or 2 irons in the fire in terms of people I know renting the property, however if I was to rent to a 'stranger' then i would probably consider a LA.

Be VERY careful: do not confuse "renting to people you know or friends" with being able to do things informally. Letting Agents are much more about JUST finding tenants. However you rent to, you need formal contracts, you need an inventory, you need credit checks etc. As a Landlord, you need plenty of protection (good tenancy agreemenst and proper LL insurance policy are paramount).

Also how far away from the property will you be moving? If the washing machine sbreaks down and floods at 8am on a Sunday morning, who will the tenants need to call? If you disappear on holiday in January and the boiler breaks down, who is going to manage that? If your tenants stop paying the rent, who is going to deal with it?

the_salmon wrote: »

I am just starting my research on this as I only got offered the new job last Thursday and have so much to think about, but this has been really helpful. I know through contacts that the rental market is strong with less people being granted mortgages or able to get them, so the demand to rent is high and I see this as an opportunity to try and benefit as much as possible from it.

Who has told you that? I think that they are wrong (although it varies from area to area). ACTUALLY with a lot of people not being able to sell their housses/flats (or not wanting to), at the moment, many sectors of the rental market are FLOODED with properties, rents have dropped considerably and many properties are vacant...

Sorry to put a downer on all that.

It doesn't mean that renting your house out isn't a good idea, BUT:
- I really doubt that you would be able to release any equity.
- Make sure that you protect yourself (with tenancy agreements, inventories and suitable insurance).
- Consider the hassle involved if you DON'T use a Letting Agent to manage your property.
- Don't be overly optimistic about how much rent you will get (rents are generally falling and NOT rising).

If you really want to release equity, you may need to sell. Otherwise you could rent out, rent for a while yourself and save up for a deporit for a new place (10% at the moment).

Good luck
QT

the_salmon

Plenty to consider, like I say I am right at the start of this 'journey'. Im going to look at options with my current mortgage provider, and also speak to an estate agents this week as well. One thing, regardless, is that I want to come out of this owning a property, and that is the main thing!!

QTPie

the_salmon wrote: »

Plenty to consider, like I say I am right at the start of this 'journey'. Im going to look at options with my current mortgage provider, and also speak to an estate agents this week as well. One thing, regardless, is that I want to come out of this owning a property, and that is the main thing!!

Good luck

It is certainly a very good thing to look at ALL of the options and thoroughly research them all.

QT

horace_2

QTPie wrote: »

How much equity are you looking to release? IF your house is worth £85k (and I think it is always worth working on the pesimistic estimates - much better than being overly optimist and being disappointed).

If you have £64k outstanding on a house worth £85k means that you have 25% equity. To get a "Buy to Let" mortgage as such (say applying for a new one with someone like Lloyds), then you need AT LEAST 25% deposit/equity in the property: so they would not allow you to release any further equity from your property. If you stick with your current mortgage lender, then they are unlikely to allow you to release further equity either (if you want to move to a buy to let basis).

So it is unlikely that you will be able to release any further equity on your property.



Be VERY careful: do not confuse "renting to people you know or friends" with being able to do things informally. Letting Agents are much more about JUST finding tenants. However you rent to, you need formal contracts, you need an inventory, you need credit checks etc. As a Landlord, you need plenty of protection (good tenancy agreemenst and proper LL insurance policy are paramount).

Also how far away from the property will you be moving? If the washing machine sbreaks down and floods at 8am on a Sunday morning, who will the tenants need to call? If you disappear on holiday in January and the boiler breaks down, who is going to manage that? If your tenants stop paying the rent, who is going to deal with it?



Who has told you that? I think that they are wrong (although it varies from area to area). ACTUALLY with a lot of people not being able to sell their housses/flats (or not wanting to), at the moment, many sectors of the rental market are FLOODED with properties, rents have dropped considerably and many properties are vacant...

Sorry to put a downer on all that.

It doesn't mean that renting your house out isn't a good idea, BUT:
- I really doubt that you would be able to release any equity.
- Make sure that you protect yourself (with tenancy agreements, inventories and suitable insurance).
- Consider the hassle involved if you DON'T use a Letting Agent to manage your property.
- Don't be overly optimistic about how much rent you will get (rents are generally falling and NOT rising).

If you really want to release equity, you may need to sell. Otherwise you could rent out, rent for a while yourself and save up for a deporit for a new place (10% at the moment).

Good luck
QT

Be very careful with advice like that above !!!

QTPie gives the impression that you are RELEASING EQUITY. This is utter, utter clap trap.

What he fails to understand and indeed fails to inform you, is that you are exploring a SECOND MORTGAGE on the property which has to be repaid with interest.

You are not `releasing equity` you are using the supposed increased in value of your property as security for a second mortgage. It follows that if, having secured a second mortgage on the property and property prices fell you would be in the brown and sticky.


The section high lighted in blue above is also nonsense. If your property has increased in value it follows that other property has also increased, thus cancelling your perceived wealth.

h

QTPie

OR you could listen to someone who doesn't know the difference between a boy and a girl... :rolleyes:

QT

PasturesNew

House prices are going down, why buy a 2nd one that will go down too.

What if:
- you can't rent out House1
- you didn't know the area and bought House2 in haste in the wrong area
- the job isn't as long-lived as you expected and are laid off