Renting out my house

cashorcheque

Hi there.

My husband and I currently live on the outskirts of Cambridge in a 2 bedroom terraced house we bought in August 2007, at the peak of the market. We bought it for £207500 on a 100% mortgage. The house next door, which is almost identical, just sold for £180,000.

I now work in Norwich. It is extremely unlikely, because of the nature of my job, that I will be able to get anything closer to home. I currently commute by car and it takes 70 minutes each way. I am lucky in that I can work 2 days a week from home and 3 at work, so I only commute Monday to Wednesday.

We are in our late twenties. I am now pregnant with our first child. :rotfl: We are both very excited about this but very scared about the commute with a young baby. I get excellent maternity pay and benefits for the first six months, but I will need to go back to work after that so that we can pay the mortgage. (We were on a 5 year fix @ 6.65% and our monthly payments are £1275).

So we are seriously considering moving to Norwich. My husband is a teacher so there is every chance he can relocate there. We obviously can't sell our home, and with the news that a double dip is looming, it looks like we will need to hang onto it for several years. According to two local lettings agents can expect to achieve £750-775 pcm for our house in Cambridge. We would pay 12.5% of that for a full management service since neither of us is experienced as a landlord (so £90-96 pcm). Our mortgage lenders are C&G and they will allow us to rent our property for a nominal fee. And we would hope to rent something in Norwich for around £600 pcm. Rents are cheaper in Norwich so we would be able to get a 2-3 bedroom house in a good location for that.

Since we have a little bit of time on our hands we have decided that we will not do this until we have saved a £5k kitty so that we have money for contingencies and any problems that might occur. There is high demand for rental properties in our area and the house next door was rented out to two young professionals in a day. Our property is also in good condition.

But I have two questions (sorry for the long post - wanted to explain it all clearly). Firstly, will we have to pay tax on our income from the rental, despite the fact that we will technically be making a loss? And if so, how much? Secondly, what other costs (apart from maintenance and possible gaps in tenancy) will we incur? We have gas and electric safety certificates already.

Thank you in advance.

BitterAndTwisted

A £5k kitty in savings won't even cover four month's-worth of mortgage payments. What might happen should your tenants stop paying the rent and it takes you six months to evict them and they trash the place in the meantime?

PasturesNew

If the interest on the mortgage is more than (Rent + management fees + a few misc costs like insurances) then there's no profit, so no tax to pay.

Note, it's the interest figure you look at, not the mortgage repayment value if you're repaying any of it.

googler

Even though you'll be using a letting agent, you should ensure that you are familiar with all the legal obligations and implcations of being a landlord (and/or landlady).

Leaseholder49

As far as additional costs go, there is the EPC (one-off cost, lasts 10 years I believe) and landlord's insurance. Do you have a garden? If so, you may well have to get a gardener in unless you have tenants who want to look after it. You may also want to consider joining a landlord's association (annual fee).

Regarding tax, you will need to declare the letting income but if you are making a loss there won't actually be anything to pay. I don't quite follow PasturesNew's post, but basically your income = rent and your allowable expenses = mortgage interest, agents fees, misc running costs (you need to find out what's allowable from HMRC). If expenses > income, you have no profit so no tax to pay.

I know Cambridge well (I am a landlord there). I would say the letting agents are a little optimistic on the rental value, but then I don't know exactly where the property is, and if there is evidence of nearby properties achieving those rents that's clearly a good guide.

You will find a lot of doom-mongers on here saying that you're taking a big risk, and whilst it's right to be cautious and be aware of the potential problems, I would say that the rental market in Cambrige is quite unusual in that there is a very large transitory population of what you might call 'high quality' tenants (visiting academics, doctors on rotation etc), and if you are careful about your tenant screening and patient in picking the right tenants, you'll be unlucky to have a bad experience.

It's a very valid point though that you need to be totally up to speed on legislation even though you are using an agent, as ultimately all the responsibility falls on you, the agent just acts on your behalf.

Good luck with it.

BitterAndTwisted

The OP has asked this question about renting out their property before:

https://forums.moneysavingexpert.com/discussion/comment/29409823#Comment_29409823

OP: you asked back in January whether what you were proposing was a recipe for disaster and I believe that the consensus back then was "YES!"

Have you looked into that Monday to Friday lodging option?

Leaseholder49

Why do you think it's a receipe for disaster?

How would Monday to Friday lodging work with a small baby?

BitterAndTwisted

I think there is far too much risk involved. The £500 a month short-fall in rental income. The additional £600 a month for rent in Norwich. The OP and her partner are not experienced landlords. They are considering a mere £5k in savings which wouldn't cover four months of rent if everything went t!ts up.

Monday to Friday lodgings equals Daddy looks after baby on those days/nights and I reckon you could find one (I've just looked on MondayToFriday.com and the asking-rent is £300 a month). I'm sure Daddy will be competent to look after his own baby after six months of practice!

cashorcheque

BitterandTwisted thank you for your replies but our circumstances have changed. We've looked into it all much more since then and we had no kitty at that time. Plus a lot of people were very concerned we were considering not going with a lettings agent and, without reading that other post, I'm not sure I was clear about the actual city I live in. We were also considering selling and a lot of other options then, but now we have no other choice.

Thanks again but there is absolutely no way on God's earth I would consider bringing up my child in the circumstances you propose. I think there are a lot of other parents who would feel exactly the same as me. If, as you say, we got into the very unlikely circumstance (given the area we live in) that somebody did not pay their rent for several months, and we could not evict them, we would have to apply for temporary accommodation at the university at which I work. This would not be ideal, of course, but we would not be homeless.

Double thanks to everybody else for your helpful and constructive replies.

cashorcheque

Also, I'd just like to point out that I started this new thread so that I could have a totally fresh set of opinions on a slightly different situation from last time, not framed in the terms in which I asked the question in January. If I'd wanted the old thread revived I could have revived it myself. But thanks anyway.

N79

12.5% is too high an agents fee for Cambridge. Get it down to 10%. Also negotiate on letting fees (tenant finding fee - you seem to have missed this in your costs breakdown) - you should aim to at least get the first set waived.

Edit Just read the rest of your posts and agree that this is highish risk for you. I also agree that Cambridge is a relative strong market (which I know well).

If you go ahead, make sure you reference tightly and don't be tempted to take any risk on the Ts just to avoid a longer void. You can not afford to carry it.