Not sure what to do.......please help

samnmalc

Morning all, this is a long one so please bear with me.

We own our current property with 35k outstanding on the repayment mortgage.

We want to buy a second house and have seen one for 200k that we like.

My partner can get £170 on his wage for a new mortgage, so we need an extra 30k for the new house.

We thought that we would re mortgage our current house for the 30k and rent it out for around £500 pm which hopefully would cover the new mortgage.

My partner wants to remortgage for an extra 50k to help with tax and moving costs...but I think we should keep the remortgage as low as possible.

He also thinks that ,as we are not married, if we put a house in each of our names , we can avoid paying some tax. Is this correct?

Does anyone have any financial advice for us or see a better way of getting the required money together , because I am concerned that the repayments are going to be large. (I am a stay at home mum)Is the above plan the best way to go about it?

Any advice gratefully received....Thanks all.

lisyloo

He also thinks that ,as we are not married, if we put a house in each of our names , we can avoid paying some tax. Is this correct?

If the rental property is in your name then the income tax will be low because it will be at your rate and not his.

My own opinion is that it's a really bad time to buy property (because there is a risk of house price falls) and it looks like you are saddling yourself up with a lot of debt with one income.

Has he taken into account of the income tax?
What happens if he loses his job (it's a lot of debt to carry)?
What happens if you can't rent the property out?

and rent it out for around £500 pm which hopefully would cover the new mortgage

I don't mean to sound harsh but hopefully isn't good enough.
You need to do a detailed assement, that include repairs, maintenance, tax, void periods (property empty), mortgage cost (usually more than residential mortgage).
There are some legal requirements of being a landlord in terms of maintenance which are over and above what most of us do with our own houses e.g. gas safety certificate.

You need to work all this out in detail and not just hope.

garysletters

As lisaloo says, but its hidden away, you would also need to get a buy to let mortgage. this will probably be around 1% higher than a residential mortgage. also your home insurance will be far higher, and you will find repairs will cost more. You also have to be able to absorb any periods when the house is empty.

Take a long hard look into what your financial situation is.

simonjfisher

You could certainly remortgage your existing property on to a buy to let mortgage to raise the extra £30,000 or even more. Tax wise the more you owe on your buy to let mortgage the less profit you will make on paper and the less tax you will pay.

But by owning one house each you could avoid Capital Gains Tax by neglecting to tell the taxman you're not actually living separately. Not something I would recommend though, I hasten to add!

House insurance will be higher but not necessarily dramatically so. I don't see why repairs should cost a lot more if you get the right tenants or use the right management company.

All in all a lot to consider...but a lot of options...

lisyloo

I don't see why repairs should cost a lot more if you get the right tenants or use the right management company.

I think it is human nature that you don't treat things you've "hired" in the same way that you treat your own property that you know you are going to have to clean/maintain/replace yourself.

I am not saying that most people are negligent, just that you wouldn't be so meticulous about things like knocking the paintwork, cleaning up stains on carpets etc.

You have to allow for this in your calculations and expect it to not be "cared for" in the same way that you would care for your own possessions.

samnmalc

Thanks for your replies everyone...you have given us something to think about.

I will look into how much 'renting out' will really cost us. We will need to go with a good company to oversee it all...so will find out about their charges.

Does anyone know which is a good mortgage at the moment?
I suppose we would be better getting a fixed rate for a couple of years......

Simon, do you know anything about these 'Let to buy mortgages'? What are the main benefits in taking out one of these?

Cheers

herbiesjp

You can buy to let or you can let to buy.

Buy to let - normally you are buying a new property with the express intention of letting it out. The lenders will agree a mortgage amount based on the rental income the property will generate (some lenders will want proof of a minimum amount of personal income and some will not)


Let to buy - you already have an existing property, but do not wish to sell it, and purchase a new property. You will need to advise the current lender that you are going to let out the property (some are happy to do this at standard rates some will add a premium onto the rate). Your new lender for the new property has to be one that is happy with this Let to Buy scenario - some will want the rent to cover the mortgage paymant by 125% and some will want only 100% cover.

The benefit of let to buy is that you will normally be able to keep more competitive interest rates

samnmalc

Thanks Herbie , I will look into that.

garysletters

the repair costs are higher because as soon as something (anything, even small stuff) goes wrong it needs fixing - properly, whereas if something goes wrong in my house, i'll have a go myself, or ignore it if I can. Plus some managing agents charge a percentage for arranging the repair. Plus everything has to be certified.

If you are looking at costs, ask around for insurance on a buy to let house....see how much the difference is!
See how much agencies charge to register with them/draw up contracts/ inventories/find a new tenant/management fees etc etc.
can you fill in a self assessment form or how much is an accountant.

PS I'm not trying to put you off, just letting you know what to account for.

samnmalc

I have phoned round a few letting agencies and the average letting fee is 12.5% per month. They are sending me their packs!

As for repairs , we are lucky that we know a bloke who can turn his hand to pretty much anything , and if he can't do it then we would get it done professionally anyway , so the costs should be around the same.

God , my head is spinning..there is so much to consider and I havent even started looking for the best mortgage deal yet.........

fast_track

I once let a property, we moved to the south coast and wanted to rent down here until we decided where to buy. The concept of "what is nailed down" was stetched to new limits, the lino in the kitchen went, all the carpets went, the shower went, the toilet was cracked, the wreakage was unbelievable. Luckily I had rented out via the council who made everything new again, but it was a painful experience