Becoming a landlord.... ...should I remortgage?

miss_undastood

Hi,

I'm currently living in my house, but recently I got married and my husband and I are keen to move up the property ladder. We are in quite a good situation at the moment as my husband has never had a mortgage, and I own 75% of my current home.

We are planning to move to a larger house; but keep the existing one and rent it out. We should be in a position where we have a decent deposit on the next house, so we don't actually need to sell or remortgage house 1. However as rental income will be taxed I think that we're better to remortgage house1 on a BTL mortgage to have a smaller residential mortgage in house 2. I am sure you can offset the interest payments on a mortgage against "profit" from renting out a house.

Am I thinking along the right lines or is there more that I need to consider?

Yorkie1

Depending on your lender, you may be able to get consent to let rather than BTL if you prefer.

Don't know enough about tax to comment on that.

Are you fully aware of all that being a LL involves? See G_M's post here.

miss_undastood

Thanks, a lot of info to digest. I presume tax will be at our usual rate?

Yorkie1

I *believe* it is taxed at your usual income tax rate, but am not certain. There are, of course, deductions you can make for certain expenses. Others will know more about that than I do.

Perelandra

It will depend on the relative mortgage interest rates on property 1 and 2, but generally speaking it is preferable to have a higher mortgage on the rental property, and a lower mortgage on the property you live in- so yes, you have your understanding good, miss undastood!



(ok, ok, that was grammatically awful, but a little artistic licence is allowed every now and then!)

googler

miss_undastood wrote: »

We are planning to move to a larger house; but keep the existing one and rent it out. We should be in a position where we have a decent deposit on the next house, so we don't actually need to sell ........

Am I thinking along the right lines or is there more that I need to consider?

You need to consider;

It's currently 'your' house. Can you be emotionally detached from it when you're renting it out?

Can you cease to regard it as 'your' house, and look on it as the business asset that it will be?

Will you remove every last shred of your belongings from it prior to renting it out? Can you avoid regarding it as some extra storage space, an annexe to your new home?

Thrugelmir

miss_undastood wrote: »

I am sure you can offset the interest payments on a mortgage against "profit" from renting out a house.

How do you intend repaying the capital balance on the mortgage?

Sharon87

Also something else to consider. Could you afford to pay both mortgages if you don't have a tenant in for a couple of months? Or if the tenant pays late? If you'll struggle, then it wont be the best idea.

miss_undastood

Wow loads more useful comments, thank you all

Yes we will be able to afford both mortgages. I don't technically need the mortgage I have, but have a better savings rate than I pay on the mortgage. Even when you take tax into acccount.
Remortgaging current house to BTL means we will need a lower mortgage on house 2 when we get there, so makes sense from my point of view...

I am emotionally detached from this house. It never has felt like my home, just where I live. Particularly after all of the bailiff visits etc I had from the previous owner. Thankfully that seems to have gone quiet over the last 12m - I honestly wouldn't wish it on my worst enemy!

Thrugelmir: I have share plans due to mature which I can use towards the capital. But as mortgage 2 will be small we will be paying off house 1 too - if all goes wrong we can always sell, but at present I am practically mortgage free :-) but it is better to rent a mortgaged house than an in mortgaged one!

Perelandra: I like what you did there! Thank you for confirming I was on the right thought train

Googler: I don't have much stuff, but yes, everything will move with me, leaving the house ready for someone else to live in

Thanks again for all of your comments and feel free to raise anything I have forgotten to account for - new boiler is being installed a week today so that is one thing which won't go wrong! :-)

GDB2222

Quite often, a property that you would choose to live in yourself is not a good rental proposition. There are all sorts of questions you need to ask yourself, the most important of which is what the rental yield is likely to be. Also, how close is it to the nearest transport links? Unless this ticks all the requirements for a buy to let property, you may be better off to sell it and start again.