Renting out our house and getting another mortgage for a bigger house

NannyV

Hi, if anyone has any advice Id appreciate it. We looked into moving to a bigger house but although we could double the value of what we would own, we wouldn't be getting much more house for the money and it would mean having massive mortgage repayments and going back to not having as much cash spare.

So I thought about renting out our current house, and then buying another house with a new mortgage a little bit bigger than our house now (but compromising on location and price ....) so that we still gain by getting a house with an extra bedroom or 2 and lower repayments, but also somebody else paying rent to cover the mortgage on our current house.

Here are the figures:

Current house value - aprox. £250 to £270k, mortgage amount: £170k = aprox. £800 a month. I think we could rent it out at £1100 easily plus bills.

If we buy another house it would be with a new mortgage of about £250k plus any deposit we save up in a couple of years time of aprox. £40k ....... (or could we re-mortgage our current house and take some of the equity?)


Any opinions/advice/better options?

Thanks in advance

Yorkie1

1. Are you ready for the legal responsibilities and expense of being a LL?

2. Could you financially handle a void or a non-paying tenant of several months if you needed to?

3. Who is your lender? Have you checked whether they allow consent to let and, if so, what additional charge they may make?

4. Do you plan to manage the property yourself or get an agent to do it for you?

monty-doggy

Have you factored in what happens when the house is without a tenant? How long can you afford to pay both mortgages? This can happen very suddenly and it can take time to re let.
Also what about up keep of the rented house? As landlord you are liable for any repairs. My first rented house looked perfect, but in the first year the boiler broke six times, we had to have a new shower, a new toilet, damp in the kitchen and new lead flashing on the roof.
That's unfortunate all in one year but it could happen and you have to deal with it. Also you have you have yearly gas safety checks etc.

You really need to have a safety net should any of the above happen!

Werdnal

Your existing house mortgage would need consent to let from the lender - they may agree, they may up the payments and ad dadmin charges, they may refuse. If refused, you would need to convert to BTL.

Covering your existing mortgage with the rent is not guaranteed - rent dries up through non paying tenants who could take several months to evict, or a gap in letting - how will you manage. You also need to declare rental income for tax and HMRC only accept the interest portion of the mortgage as an "allowable expense", not any repayment amounts.

The rental income can also affect any benefits you get (tax credits etc) as it is taken as part of your household income, regardless of whether you are paying the house mortgage out of it!

Then you need to be aware of all the other costs, legal issues and obligations of letting, read this:

http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12

and all the link it contains for an idea of what you are getting into.

Many people think that letting their property to move on is a good idea without fully appreciating what is involved. In reality it may not be worth the hassle and expense, and you may struggle to cope with the cost of letting and still keeping a roof over your own heads.

You need to work out the finances, check whether you can even get consent to let it, and weigh up whether it will work for you ... or against you!

NannyV

Hi, yes sorry forgot to say we would also save up and have a contingency for those sort of things, at the moment my partner is on over-time bringing in a saving of £1000 a month so it is that we are hoping to save up for a deposit on another house and also as back up funds.

We have just updated our current house, brand new shower room and brand new bathroom plus plastering and painting all other rooms. But yes also aware of having to replace things if they break etc. but the idea of eventually paying off both mortgages and being left with owning 2 houses for the price of 1 is quite appealing.

PS- our mortgage is up for renewal the end of this year so will look into if we could transfer to something that we could then transfer to buy to let ....

We don't get any tax credits etc. as my OH earns over the limits to get anything ....

I would probably manage it myself, would rather do that than pay someone else to do it if its something I could do myself.

Will look at that link, thanks

ognum

have you remembered you will need to pay tax on your rental income?

NannyV

Yes I was thinking it would be tax payable, what is the rate and threashold?

Im trying to think of a way to explain my dilemma of WHEN we can afford to do this:

The cost of a house we want to move too would be about £340,000. We would only really want to commit to a £250,000 mortgage as don't want our lifestyle to suddenly go down hill too much. So in order to do this we need £90k deposit ...... if we were to re-mortgage the current house from 170k to 210k, that would give us £40k (but also the mortgage repayments would increase and yet the rent wouldn't so wouldn't get as much return from the rental each year ) , we would then still need to save up the remaining £50k plus fee's/moving costs .... so really the saving of the £50k is a few years away ..... until we have more equity in this house and more savings ...
does that make sense?

geoffky

And if prices crashed? As has happened many many times before..

NannyV

prices crashing / interest rates rising .... yes that would be a pain, I guess if prices crashed we wouldn't be able to sell up without loosing a lot of money invested ....

G_M

New Landlords (information for new or prospective landlords)

Yorkie1

Bear in mind that many BTL mortgages are max 75% of the property value, I think - so you might not be able to release as much equity from your current property as you hope, when you come to remortgage to a BTL.