Remortgage + equity + 2nd mortgage question

odb_2

Hello all,

Just looking for the opinion from the experts on here please

My situation is that I currently live in a flat I bought 7 years ago for £135k, it's probably worth £130-135 at present, but my remaining mortgage balance is 95k over 33 years (I had a 25k deposit, bought when I turned 24), the rate was fixed 4.24% then went to a tracker of base + 0.75% - which puts me in an amazing position as the monthly repayment is down to £294!

The flat is worth £600 a month if rented - I know a friend rents out an identical flat 50 yards away.

Now in the near ish future I may look to move in with my girlfriend, she has a small house so we would probably live there as a test the waters situation before looking to buy a place of our own.

We both want to keep our properties, she has 45k in hers and I have 30k+ in mine. My question is what would be the best method?

I think our next property would be in the £250k ballpark so we would need to save alot for a deposit - and I guess I'd need to remortgage to take out the equity in mine, and then lose the amazing rate?

If I rented it out, overpayed the mortgage could I then take that money back out later? Otherwise I'll get hammered on tax (Im just into the 40% band) on the rental income if I just take it as profit.

The ideal world for us both is to have 3 properties, renting our existing ones out as a future nest egg. But I feel trying to save £30k+ for the 3rd would have a big impact on our quality of life.

Any thoughts/advice? Sorry about the long post just wanted to try and give as much detail as possible. I appreciate any replies.

Thanks

Jonbvn

You will need the approval of your mortgage lender to rent out your flat.

You have also not considered the option of what happens when interest rates rise.

odb_2

Thanks for replying.

I thought you just let them know it's being rented out? I thought I'd asked that question to them in the past and they said they just need to know.

Also I believe rates will be low for the next 2-3 years as the government is trying to get the housing market going. The rate would need to be 6+ % before renting the flat was costing more than the mortgage.

Thrugelmir

odb wrote: »

I thought you just let them know it's being rented out? I thought I'd asked that question to them in the past and they said they just need to know.

Also I believe rates will be low for the next 2-3 years as the government is trying to get the housing market going. The rate would need to be 6+ % before renting the flat was costing more than the mortgage.

You'll need to apply. The lender will set the terms of consent including the rate of interest charged.

There's more to letting property than just collecting rent. You'll be running a business, so will have all the rewards and risks that go with doing so. Best to investigate the matter thoroughly.

Don't overlook the fact that any profit is taxable and needs to be declared either.

MisterMotivated

As others have said, there's more to this than just writing to the bank to say you're renting out your flat.

Also...

odb wrote: »

If I rented it out, overpayed the mortgage could I then take that money back out later? Otherwise I'll get hammered on tax (Im just into the 40% band) on the rental income if I just take it as profit.

Capital repayments aren't eligible for tax relief, only the interest portion of your mortgage payments, so you'd still be liable for tax on the profits you use to overpay.