Should we rent?

northwest1965

We really need some advice.
Our house is valued for £90K and is on the market for offers over £80K. We need £85K.
So if the house we want to buy is 160k, we would need to remortgage this current house to a value of £54K. R500 per month plus all the other outgoings - agent/ gas certs/ mortage repayment. Husband is a 40% tax payer. That leaves us, just breaking even. Is that a good thing?

Notmyrealname

Your post isn't exactly clear on what you want to do. Are you wanting to take out equity in your current property to buy a new one and let out the current one?

First of all, you would only be able to take up to 70% of its value as a LTB mortgage typically requires a 30% deposit or equity.

On a LTB mortgage of £54k if you did it interest only the repayments would be £230 or thereabouts a month. Gas cert and service is around £75 a year and LL insurance around £120 for buildings.

You should clear around £2500 a year gross.

If you get a repayment mortgage that only the mortgage interest is tax deductible so you would pay tax on the capital repayment portion as though it were income at 40%. So it would probably cost you money to rent it out. Say you got a repayment LTB mortgage which cost £500 a month made up of £230 interest and £270 capital repayment and the monthly payments were met by the rent. As mentioned you would have to pay tax on the capital portion so at 40% would have to find £108 a month/£1296 a year to pay the tax man.

Fire_Fox

Sorry but I don't follow either.

LandyAndy

Sorry but it's another vote for 'no clue what you are asking'.

northwest1965

Sorry I didn’t explain it very well.:o

We want to take out equity on the current house we live in and buy a new one. We would have a LTB mortgage of 60% (54K). We were thinking of a repayment mortgage. Factor into this the other things we need to pay for – agent/certs/insurance. Husband is a 40% tax payer. It means we just about break even. Surplus of about £40 a month.


Is that clearer?

DannyboyMidlands

What's the point of doing it if you're not making any money?

Notmyrealname

northwest1965 wrote: »

Sorry I didn’t explain it very well.:o

We want to take out equity on the current house we live in and buy a new one. We would have a LTB mortgage of 60% (54K). We were thinking of a repayment mortgage. Factor into this the other things we need to pay for – agent/certs/insurance. Husband is a 40% tax payer. It means we just about break even. Surplus of about £40 a month.


Is that clearer?

So it was what I thought. You won't break even. That surplus of £40 a month will go some way towards paying the tax bill he'll get for the reasons I outlined above - the capital repayment portion of the mortgage is treated as income and is not tax deductible.

As I posted above:

If you get a repayment mortgage that only the mortgage interest is tax deductible so you would pay tax on the capital repayment portion as though it were income at 40%.

It would be better to do it as an interest only mortgage payment and make capital repayments periodically. That way it would be an additional source of income and if a big bill came along such as needing to replace the boiler you could take it out of the profits and not have to find money out of your main income or savings.

The business, because that is what it is, needs to be entirely self sufficient. £40 a month isn't a sufficient surplus to cover any unexpected repair bills or mortgage payments if the tenant defaults.

northwest1965

DannyboyMidlands wrote: »

What's the point of doing it if you're not making any money?

Its about being in it for the long haul, having someone pay the mortgage on the property. Selling it at retirement or having a rent as an income