Can I Buy Another property and rent mine out?

mrsmoneypenny2013

Hi Moneysavers,

I have a question to which I can't seem to work out a correct answer so any educated advice would be appreciated.

I am planning to move house in about a year (I know this is a way off but want to see where I stand)

I am living in a house my husband and I have owned for 17 years. We have a £75000 endowment mortgage at present (we pay monthly £90 interest and £121 endowment but the endowment is unlikely to pay off the mortgage with a £30,000+ shortfall likely).

The property we own is worth about £210,000 and we were looking at moving into a property in the £300,000 price bracket.

As our current mortgage repayments are low I think it would be worthwhile seeing if we could rent out our current house and use the equity to help finance our new home.

(I suspect that our property should make £800 - £950 PCM rental)

Would it be possible to obtain a mortgage to cover this?

I only work part time and earn £12000 whilst my husband earns £46000. As he reaches 40% tax I was considering whether we could put the current house/mortgage in my name and the new one in his so any 'income' from the old house was only charged at 20%.

We do not have any actual cash to put down after fees but really need to move in about a year. Any advice please!!!

bigadaj

It's possible but very fiddle given your details.

You seem to say that you will have no deposit on your new home if you don't sell your current one, so you'll need to remortgage to get a deposit on your new house.

Buy to let is a business don't forget, so needs work and effort and there will be costs in running it. You will be limited when remortgaging to about three quarters of your rental income, so could mortgage up to around £650 per month. Your mortgage rate would probably be loaded so this could equate to releasing a little over £100000.

If there are voids, damage etc you will be fully liable, so you need to allow for at least paying mortgages to four hundred grand or so at least for a limited period.

mrsmoneypenny2013

Thanks very much for the response.

Gives me some food for thought, and can open up some further discussions!!


Best wishes

florence4

I'm in a similar position... As far as I can discover, I think you (and I) will need to take out a buy-to-let mortgage on the property you currently live in, to raise the capital to put towards the purchase of your new home. You will then take out a standard residential mortgage on that.

The amount you can borrow through a BTL is worked out by two factors:
(a) loan-to-value - usually a maximum of 75% - so if your house is valued at £200K you could theoretically borrow up to £150K. Interest rates are better, the lower the percentage; and
(b) predicted rent that comfortably covers the mortgage payments - banks seem to look for rent to be at least 125% of the mortgage, so if you can get rent of £500/mth, you could get a mortgage that will cost you up to £400/mth.

But frm what you say, although your house is valued at about £210K, you only have about £110K equity in it. I have a feeling BTL lenders may only lend 75% of the equity rather than the value - which would then mean you could only raise £77K, which would cost you about £300/mth. A mortgage advisor will be able to confirm.

The amount you can borrow on a normal residential mortgage is worked out according to your income, with better interest rates for bigger deposits.

So from what you say (and I'm NOT a financial advisor!) it sounds like you could raise £70-100K from your current house. That would give you a 23-33% deposit on a new house. On combined incomes of £58K you might be able to get a resi mortgage of £150-200 (you'd need to check) but it might leave you a bit short of your £300K target.

It would probably be do-able, but like All Things Mortgage, if you want to do something a bit tricky, it'll probably cost you more!

Good luck!

Thrugelmir

With no savings. You need to calculate whether you can afford a £300k house. Purchase fees and stamp duty will be considerable.

Letting your own property isn't as simple as collecting rent to cover the mortgage. If you are unsure at whats involved. Good advice can be found on House Buying, Selling and Renting board.

The biggest hole in your plan is if there's no rental income for any reason. How would you fund the deficit?

mrsmoneypenny2013

Thanks very much, that gives us some estimates and numbers to work with. Got a bit of time yet but will help us with a plan!!

Good luck to you too and hope you sort your mortgage out too!!!

florence4 wrote: »

I'm in a similar position... As far as I can discover, I think you (and I) will need to take out a buy-to-let mortgage on the property you currently live in, to raise the capital to put towards the purchase of your new home. You will then take out a standard residential mortgage on that.

The amount you can borrow through a BTL is worked out by two factors:
(a) loan-to-value - usually a maximum of 75% - so if your house is valued at £200K you could theoretically borrow up to £150K. Interest rates are better, the lower the percentage; and
(b) predicted rent that comfortably covers the mortgage payments - banks seem to look for rent to be at least 125% of the mortgage, so if you can get rent of £500/mth, you could get a mortgage that will cost you up to £400/mth.

But frm what you say, although your house is valued at about £210K, you only have about £110K equity in it. I have a feeling BTL lenders may only lend 75% of the equity rather than the value - which would then mean you could only raise £77K, which would cost you about £300/mth. A mortgage advisor will be able to confirm.

The amount you can borrow on a normal residential mortgage is worked out according to your income, with better interest rates for bigger deposits.

So from what you say (and I'm NOT a financial advisor!) it sounds like you could raise £70-100K from your current house. That would give you a 23-33% deposit on a new house. On combined incomes of £58K you might be able to get a resi mortgage of £150-200 (you'd need to check) but it might leave you a bit short of your £300K target.

It would probably be do-able, but like All Things Mortgage, if you want to do something a bit tricky, it'll probably cost you more!

Good luck!

mrsmoneypenny2013

Thank You!!

We are saving at present and hope to be able to cover the mortgage fees and stamp duty ourselves but would not have a 'cash' deposit.

Working hard to add to that but circumstances have really dictated that a move is really needed within a year or so.


Wanted to try and keep hold of the second house as my husbands pension is now likely to be drastically reduced and really wanted to try and hold on to it to try and provide an income in years to come.

Thanks for your advice!!

Thrugelmir wrote: »

With no savings. You need to calculate whether you can afford a £300k house. Purchase fees and stamp duty will be considerable.

Letting your own property isn't as simple as collecting rent to cover the mortgage. If you are unsure at whats involved. Good advice can be found on House Buying, Selling and Renting board.

The biggest hole in your plan is if there's no rental income for any reason. How would you fund the deficit?

Thrugelmir

mrsmoneypenny2013 wrote: »

Wanted to try and keep hold of the second house as my husbands pension is now likely to be drastically reduced and really wanted to try and hold on to it to try and provide an income in years to come.

Then you need to crunch the numbers as to whether the property will provide the return you expect. Both ISA's and Pensions have tax advantages over BTL property.

By crunch the numbers I mean project forward in the form of a business plan. As BTL is a business not an investment.

kidmugsy

The government is going to stimulate a flood of money into the housing market starting in January 2014. This will drive prices up presumably. So you should aim to buy your new house before then and sell your existing house afterwards, as long, that is, as you have the stomach for the gamble and don't mind risking real trouble if the govt policy doesn't work out. Owning two properties on a falling housing market wouldn't be fun.