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Should I buy a new house AND rent out my flat

Hello all,

I would very much appreciate any comments and advice about my situation. :huh:

My wife and I own a flat and plan to move to a house. We are considering keeping the flat to let out.

Nationwide, who we have a current mortgage with say we can keep the flat on the current mortgage even though we want to rent it out.

We will need to release some equity from the flat in order to finance a deposit on the house.

They want us to cover 125% of the mortgage with the rent. As this is not possible (barring a very generous tenant!) they will consider any deficit (£175 with our figures) as being another expense before considering how much to lend us for the new house.

Other details: We're in our early 30s and have no debt other than the mortgage. We do fancy being landlords and like the flat so would be glad to keep hold of it. It is also a spacious 2 bed flat in a good area and should hold/oncrease in value. I've been wanting to secure another income stream, for example from property, for years but this will be making us a loss as the figures stand here. Is it worth slowly paying off the mortgage so the flat can be an addition to our pensions in the future?


The figures are as follows:

Flat Approx Value: £140,000
Flat Mortgage Outstanding: £102,500
Flat expected PCM Rent: £600
Current Mortgage Rate: 6.45% fixed until 31st Aug 2013
Current Mortgage costs per month - £700

House expected value: £250,000
Expected new Mortgage Rate: 6%

As I say, any opinions on this would be very welcomed.

Thanks for reading, Jon. :)
«13

Comments

  • Emmzi
    Emmzi Posts: 8,658 Forumite
    1,000 Posts Combo Breaker
    my guyt feel on your numbers is you don't have enough equity. To get a decent rate you [probably need 25% of house value to put down = £62.5k. How much of that do you have sitting about?
    Debt free 4th April 2007.
    New house. Bigger mortgage. MFWB after I have my buffer cash in place.
  • ONLY rent of you can cope with the financial & emotional agrro of the "Tenant from hell" who you can't get out for 9 months whilst you keep paying the mortgage etc./ etc... and legal fees (to get him out) and then he 'phones you saturday 10:22 pm "Toilet's bust wodja gonna do..." "Sorry to hear that dear sir, when did this start" "Wodja goona do... wodja gonna do - dunno 3-4 weeks maybe,.,.. wossat gorra do 'wiv it??" "OK, I'll get my man to call you Monday 1st thing..." "Nah, you gorra fix it nah..>""""


    (PS Yes, you have a legal requirement to fix the gentleman's toilet, notwithstanding his not having paid you for 7 months,.....")

    If you are not sure you can cope, find another business to go into...

    And remember that your lender may up the interest rate as you will be lending/charge fees..

    & there are many other costs incurred when renting: And do your numbers only assuming you can rent for 10 or each 12 months....

    Cheeers!

    Lodger
  • Emmzi, the only equity we have for the new place is what we can get from remortgaging the existing flat (upto 95% of value) so not anywhere near £60k unfortunately.

    Lodger, oh dear. I really get a sense of your pain! As just reading your post made me angry, I will certainly have to think about how we'd cope if our tenants weren't quite as nice as we've always been when renting.

    Thanks to both of you for replying so quickly.

    Jon
  • I really get a sense of your pain!

    ??? No pain here (Well, bad back... ). Currently all my tenants are nice, freindly & pay on-time (almost: One is usually a day-or-so late: He's being given notice2quit January).

    The point of my post was to counteract some of the fluff & flummery you get from people (fewer now thank the dark lord..) saying what a wonderful easy thing renting out is.

    Go into it with your eyes open & realising what can go wrong... as long as you are comfortable with that. If not, find another business..

    Cheers!

    Lodger
  • It sounded like you were speaking from experience! Glad to hear things are going well for you.

    Will watch out for the fluff & flummery! I'm quite realistic generally and wouldn't want to go into it without being aware of the worst-case scenario so thank you.

    I guess the thing is that for some people renting somewhere out is very easy. My parents have had the same hassle-free tenants for years so their advice might be, yeah go for it, why not!

    Thanks again, Jon.
  • I can't think of anything more risky than being dependent on total strangers for paying for the roof over your own heads. You might find what looks like a completely reliable tenant who is in what appears to be secure employment and BAM! they're claiming LHA and it won't cover all of the rent. Then you're absolutely scuppered. I would advise you to reconsider this plan in the strongest possible terms unless you can cover all outgoings from your own incomes alone without the rent. I wouldn't do it. Sorry.
  • Finsecker wrote: »
    The figures are as follows:

    Flat Approx Value: £140,000
    Flat Mortgage Outstanding: £102,500
    Flat expected PCM Rent: £600
    Current Mortgage Rate: 6.45% fixed until 31st Aug 2013
    Current Mortgage costs per month - £700

    House expected value: £250,000
    Expected new Mortgage Rate: 6%

    First of all I'm not an expert on mortgages but this is from our own experience with nationwide.

    We have a mortgage with them for roughly the same amount (146,000) and our repayments have gone down to £500 a month because of the low interest rate. You could rent out the flat and make most of the money back if you were on that rate. But I can't understand why you are on a fixed rate still (our mortgage was on a fixed rate for two years and then moved to a variable).

    We have thought about renting out but it really sounds like too much hassle. What we have decided to do is save hard for the past 2 years to cancel out the negative equity. How are flat prices around your area worth btw? Because you could have paid off your negative equity already and just need to save for a deposit. Also if your flat sells for more than you owe, you should get some money back to put towards a deposit for a new house.

    The 125% mortgage with nationwide is for people who really need to move but are stuck in negativy equaity still, so I can't understand why they would be offering that mortgage to you unless you were in that situation. We are thinking of applying for one next year.
  • Don't apologise, Bitter and Twisted, thanks for your advice. I don't want to take any massive risks at this stage in my life so will have to think very carefully about our next move. Trouble is there is a lot of literature out there about how wonderful and profitable being a landlord is that it does sound quite tempting. (Use the bank's money, ie a mortgage, to build yourself a nice little property portfolio and retirement plan). We'll have good public sector pensions so should be ok in that respect I hope.
  • puddy
    puddy Posts: 12,709 Forumite
    he's not being offered a mortgage for 125%, the lender wants 125% of the monthly mortgage payments in rental for the flat, in order for them to agree to counting this as income for the new mortgage.

    personally, i cant see that you have enough money to do it. you would be maxed out on your current mortgage, have a second mortgage on the new house, any issues with your own income or the flat income, or any major expenditure on the house or the flat would render you in serious difficulty, why make life hard for yourself, sell the flat and get a house if thats what you want, but dont do both
  • Hi Jungle Jane, I guess my post might have been a bit ambiguous. We're not in negative equity thank goodness. Our flat is worth about £35K more than our mortgage. Also the 125% I mentioned is the amount nationwide would want our rental income to cover of our mortgage repayments each month.

    We are still on the fixed rate because it's a 5 year fix which we thought was the best bet at the time.

    Our place should be worth at least £140K. 2 bed flats seem to keep their prices best and ours is in a 1960's block and nice and spacious so we've done quite well I think/hope. Bought it for just under £120K three years ago and have spent around £10K on doing it up.

    Hope all goes well for you whatever you decide to do next year.
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