Should I buy a new house AND rent out my flat

Finsecker

Hi Jenner, thanks. I agree, we would be pushing it. We'll be pushing our budget quite hard as it is, what with looking at a new place for £250K (which we have to to get a decent family home that we'd be happy with).

Looks like it might be best to KISS (Keep it Simple, Stupid!!)

Cannon_Fodder

It is difficult, remotely, to be sure about the true value of your flat, as one cannot tell whether its a simple £10k 'tart up' or a clever £10k re-modelling that adds extra value.

Suppose we are generous, and say you added double-value.

£120k, plus £20k for the work done, plus 10% for end 2006/2007 = £154k.
Less 20% for the crash, £123k.
Plus 5% if you are in the right part of the country to benefit from price movement this year, = £129k rough current value. Leaves you with £27k equity.

Makes the figures even more borderline.

I can understand NW saying you can keep the mortgage as is, its such a bad % rate.

The problem is, they'll want you to leave some equity in the flat, probably 10%. = £13k not available for the deposit.

So you get to have £14k as your deposit for the house. A 95% mortgage is not only few and far between, but expensive, too.

On these figures, don't do it.

(You can see what NW think it might be worth here http://www.nationwide.co.uk/hpi/ ) £131k was the figure I got...spookily close to my guess, but you can fine-tune by region, give accurate dates etc...

Finsecker

"I can understand NW saying you can keep the mortgage as is, its such a bad % rate"

Aha, that's probably true. Is it that awful a rate? Whatever, we're stuck with it. I'll come onto this site again when we're considering our next mortgage for our move and get some advice.

On the website you quote, the place is worth £138,000. This is assuming that the valuation of "at least £140,000" that Nationwide commissioned before lending to us about one year ago was accurate.

We'll get another valuation when we've done a bit more DIY. Thanks for the advice, Cannon Fodder.

Jungle_Jane_2

Finsecker wrote: »

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.

Sorry my mistake! I should read threads properly first. I have a bad habit of doing this.

Louba

Not sure if this will help but I thought I would chip in! I moved cities for jobs and rent out my old flat - I bought it just before the market fell so I wanted to wait for the market to recover a bit before I sold. There was also a bit of self preservation involved as I wanted somewhere to come back to if it didn't work out. The rent is about half the mortgage but slightly more than the mortgage on my new place so I end up in the same position on a month to month basis. My tennants are lovely but there is still a fair amount to do to get the certifications that you need to get and so on. Also if I do decide to sell then I will have to time this around the lease arrangements and decide whether I want to do viewings while the tennants are still there. Although you can get rental income insurance you may also want to think about whether you can pay everything if you have no rental income.

Even though I'm doing it, I would probably advise against it unless you will cover the cost of the mortgage - although the value might rise in the future, this is speculative and would have to be enough to make up for what you are down on a yearly basis on mortgage and bills against rent. LIke you I have found that if you don't cover the mortgage with the rent lenders will take the shortfall into account and this makes it difficult to work out exactly what you can borrow.

I found a couple of calculators which help to show whether you would be better doing one thing or another, this one is in dollars but should give the same result! http://www.forbes.com/tools/calculator/caprate_rent_vs_sell_house.jhtml

Hope this helps!

Finsecker

Hi Louba,

Thanks for chipping in!

It's very interesting hearing that even someone who has nice tenants still advises against this, given our situation.

Just thinking about what you said: "The rent is about half the mortgage but slightly more than the mortgage on my new place so I end up in the same position on a month to month basis".

I can see how this would work for you. In our case, I want to take out a whopping mortgage to buy a nice £250K house so our new mortgage costs will be much higher (probably twice the rent we'll get on our flat).

Cheers, Jon.

PS. The calculator also said this was a bad investment but was comparing the options of renting out versus selling and investing the total.

Fire_Fox

Artful Lodger didn't advise against letting the flat, he recommended you only go ahead with your eyes wide open.

88dblifestyle

Hi... Hmmm if i were you, i'm going to safe money first and after i have the money i'll buy a house.. It is much better if you own the house that renting somewhere else...

Jonbvn

For BTL business yield is the key. Since the net yield will be negative, I just do not see the logic of the OP.

Any possible future increase in the value of the property should never be used as the basis for financial planning.

theartfullodger

Any possible future increase in the value of the property should never be used as the basis for financial planning.

See Dubai, financial meltdown etc...
http://news.bbc.co.uk/1/hi/business/8382103.stm