Renting house out while working abroad - what type of mortgage

Les.rushworth

We are in the process of moving abroad to work for a few years. Can anyone recommend what type of mortgage we should go for as our current one is coming up for renewal. The amount outstanding is approx 30% of the value of the house and on current payments about 15 years left to pay. Rent will cover mortgage with a little left over. Also, if we decide to sell in the future will we have to pay capital gains tax?

holly_hobby

The simplest way to do this, is to ask your current lender for their consent to let (CTL).

There will probably be a loading on the residential rate, and a admin fee, and the lender will probably put in place an annual review.

The alternative is to seek a BTL mortgage, which on the face of things look good in that you have a low LTV, however the fly in the ointment is that you need to have with most lenders (except Ipswich BS & The Mortgage Works) a minimum of income circa 25k, I say its a fly as you will be classed as ex-pat once you leave the UK (do you intend to return, are you employed by a multi national co with a UK base ?) - as this can complicate a BTL application.

Notwithstanding the above, BTL mge rates are higher than traditional residential mortgage products, as they are in essence semi-commerical borrowing, BTL product/admin fees tend to be a bit on the high side too.

So you have a choice to make, seek CTL with your current lender, (and if they agree to the change) compare their loading & fee against the BTL market with the assistance of a whole of market broker (remembering to make it clear that you will be residing abroad post completion).

You need to also inform HMRC of your leaving of the UK, and verify if your new country of residence has a double taxation agreement with the UK. HMRC link attached which should cover most salient points for you - http://www.hmrc.gov.uk/cnr/hmrc6.pdf

Thats the mge side of things, operating a BTL can be fraut with anxiety and issues, and you will need to have the letting managed (use an ARLA letting agent) as you will an absent landlord (i.e os of the UK). They will arrange for references/credit checks, secure deposits, collate an inventory, make periodic inspections, collect rental income and other management roles.

CGT - this having been your primary private residence (PPR), if you sell the property within 3 yrs of your vacating it, you shall avoid all CGT charges, as the last 3 yrs of ownership of a prev owner occupier, are discounted from CGT calcs, whether actually occupied by the owner during that period or not.

If you sell the property after your 3 yr anniversary of vacation, you shall be liable to CGT calc on any gain made.

However, this gain will be offset by previous yrs as an owner occupier & last 3 yrs (PPR relief), plus your annual cgt allowance, plus lettings relief, which may result in nil CGT bill to pay, unless you have achieved a huge gain on sale. (ref HMRC site for full details of all permitted allowances and the circumstances under which they may be applied)

You also need to consider how you will repay the mge liability if not on C&I.

And have a contingency fund in place for repairs,landlord B&Cs, mge payments for when you have no tenants in place, agency fees, and accountant if you want them to do your returns instead of self assesment.

And do think carefully about letting, it can work like a dream or be an absolute nightmare if you don't get the right tenant, or can't find one !!

Hope this helps (sorry for the weighty post, but I think its important to discuss all major issues), and sure others will be along with helpful comment and assistance.

Holly

Les.rushworth

Many thanks Holly, a very comprehensive reply. It gives me a structure to work to.