Newbie BTL landlord to be - any tips appreciated

I_want_a_baby

Hello everyone,

I am a stay at home mum and have a husband & two children. We currently live in a small 3 bed house which is worth around £135k and our mortgage (after some overpaying) is now around £89k. We have lived here since Oct 2012. When we moved here we got a five year fix as with me not working we needed to know exactly what we would have to pay and not worry about interest rate rises in the near future.

We believed we would be here for at least 5 years but now circumstances have changed. My husbands parents health is declining and we are now going to move 10 minutes away to their house. They have planning permission to demolish a double garage and build a one bedrooms annexe and we will move into their very large three bedroom bungalow.

We were going to sell the house as I am petrified of the risks of renting it out and we need some cash to modernise the bungalow which includes some vital works to the layout as we will have to have some shared facilities with my in laws.

However on speaking to the mortgage company we would be liable for a £3.5k early redemption charge if we sold without porting the mortgage. So we are now re thinking our decision and wondering whether renting it out would be better for us. Our in laws have offered to lend us the month for the initial works which we could repay monthly as we wouldn't pay rent on the bungalow.

So my questions are:
Are there any good books / resources i can read about letting out our house.
Our current mortgage repayment is £500 and we could let our home for around £650. Leaving £150pm to cover landlord insurance, electrical testing for built in cooker, boiler servicing etc. the rest would go into a separate savings acc for the house.
What would you say would be an acceptable emergency pot for the house - £2500 would cover 5 months mortgage and another £2500 for repairs?
How much work does being a landlord involve and in your opinion would you rent it out or sell in our position?

I would really appreciate any advice you have to give. My husband and his parents think it is a no brainer and that renting it out makes sense however I am a very prudent person and avoid any risk at all cost!

Many thanks

Stacey

mystic_trev

You will need to obtain 'permission to let' from your Mortgagee, which might be a problem.

http://www.thisismoney.co.uk/money/experts/article-2462805/Can-I-let-new-house-telling-lender.html

I_want_a_baby

Thanks for replying mystic_trev we have already spoke to the mortgage company and they say they would give consent to let.

Old_Git

you will have to pay tax on any profit ,only the interest part of the mortgage is tax deductable . You are moving into your inlaws home ,what happens if they need to go into a care home .Will they be forced to sell .

I_want_a_baby

Yes I know we would have to pay tax, I was hoping that the leftover portion of the £150 per month would be saved in a separate account to cover tax and any leftovers for repairs.

The idea is as a stay at home mum if one or both of them become incapable then I would be able to care for them in their own home avoiding them going into a care home at all. At present they can look after themselves but struggle with the size of the property (just under an acre of ground to mow, 200ft of hedges to cut, large property to clean etc). We spend lots of time there doing jobs. I would imagine they will be able to look after themselves for a good few years yet.

They own the property outright if that makes any difference?

Pixie5740

If I've calculated this correctly (which I might not have since it's Monday morning and I've not had a cup of tea yet) your gross rental yield will be 5.78%.

Letting property is a risk so I suppose it depends whether you think that risk is work a gross yield of 5.78% or if you'd be better off investing your money elsewhere.

teabelly

If you let out your current home use a letting agent. It takes all the hassle out of with complying with tenancy law, certificates etc. Rental profit is pretty low as that mortgage payment is high. Is the £500 pcm mortgage just the interest or the repayment included? If the latter also see if there is a way of adjusting to a lower repayment or interest only without getting a penalty.

If they do go into a care home and you live in the bungalow I'm not sure they could be forced to sell and supposedly anyone needing nursing care cannot be forced to sell up.

I'd talk to a financial advisor/inheritance planner about whether they could gift a portion of the bungalow to you now so that whole forced to sell scenario would be avoided altogether.

traineepensioner

I agree with the poster above.
You, and your in-laws, probably won't want to think about inheritance tax at the moment but it would make sense to do it sooner rather than later.

Bantex_2

Would it cause a problem for you if a tenant failed to pay the rent for 3 or 4 months?

I_want_a_baby

Mortgage is repayment at the moment £500 per month currently I think around £290 is interest. I would want to be repaying the capital.

I think if there was a void for a few months we would be fine for the mortgage but more repairs/tenants trashing the place I would worry about.

Parents can't gift us a part of it as a) it has an agricultural tie which we don't comply with and b) my husband has siblings who probably wouldn't agree to it. It has been agreed that if they needed to go into a care home/when they die we would move out. We would benefit from a living in a larger property/ village location/less travelling to help them whilst living there & we are quite happy we would get our own place after - hopefully having had a nice 15+ years while our children grow up there but even if it is 5 years that's ok.

They would be paying for the annexe to be built and we would pay for the alterations for the bungalow we would live in. I don't see any inheritance tax problems as we wouldn't benefit financially until they after they both die and the estate is calculated?

Without sounding flippant the money isn't important to us. We want to be there for my in laws and help them and also help them to make their place a wonderful place for their retirement. We would pay all the bills giving them extra spending money each month to enjoy life and as far as I see it as long as we can save a bit per month or keep the house to rent we should still have a sizeable pot for a deposit on a new place when it is our time to leave?

I think I am leaning towards selling the house despite the ERC. We would come out of it with approx £40k if we spent £10k on the property we could invest £30k. Then save a minimum of £300pm for the entire time we are there.

I_want_a_baby

I should add that the planning permission is granted and is for an annexe which is classed as an extension of the property which means whilst one of the parents is living there we comply with the agricultural tie.