Buying a property while continuing to rent?

VicariousThrills

Hi,

I am new to the idea of buying so please forgive my ignorance.

I currently rent in the private sector with my partner in inner London (zone 2). With both of our savings and a bit more time, we could probably scrape together about £60k or given enough time £70k, which would be enough for a deposit and legal fees to buy some properties. Yay.

However, there is no way my partner and I could get a mortgage to buy a property anywhere close to where we currently live (looking for 2 bed flat – average price £700k), as we earn around £70k between us.

Obviously one option would be to just forget it and continue renting where we are, and the other to buy somewhere to move much (and I mean MUCH) further away from our work and families, which would manageable now, but will become an issue when (hopefully in the not too distant future) childcare is on the cards.

I was wondering about a third option: buying somewhere far away and letting it out, while continuing to rent ourselves somewhere we wish to live.

I am assuming this is probably financially a complete non-starter because we'd be paying tax on rental income, but paying the mortgage on the property out of taxed income. Plus paying rent on the property we were living in as well.

So essentially, if we were able to keep up with these payments, it would be a gamble on whether the price of the property we'd be buying would increase more than the total cost of the tax we'd be paying on rent + the interest on the mortgage.

Is this the right way to think about this? Has anyone done anything similar or is it complete madness? Does anyone know any (legal) ways of minimising the cost of something like this?

Any advice gratefully received.

pcgtron

Most BTL lenders want you to own your own property outright or have a residential mortage in place or they won't lend to you.
Your idea is probably a no go from the outset

davidmcn

VicariousThrills wrote: »

we'd be paying tax on rental income, but paying the mortgage on the property out of taxed income.

No, you'd be paying tax on any rental profit - the mortgage is a deductible cost.

marliepanda

davidmcn wrote: »

No, you'd be paying tax on any rental profit - the mortgage is a deductible cost.

Mortgage interest, not repayment.

VicariousThrills

Thanks all. Didn't realise that mortgage interest was tax deductible - am slightly confused about the whole thing as I read somewhere that only applies to second homes. But I assume that that's just shorthand for saying it only applies to homes which you own as a business and rent out. But maybe not.

In any case sounds from pcgtron's reply that the idea might be dead in the water anyway, although if reluctance of lenders is the only obstacle then I'd give it a go.

Kynthia

There are some people that do this but it takes research to ensure you buy the right type of property and that the finances work.

You'll need a BTL mortgage from a lender who doesn't require you to own a residential property. You'll need a high percentage deposit. You'll need a property that is easy to let, with low maintenance costs, and that you believe will increase in value over time. You might need a good agent as you won't be nearby, so research what they should do, who is good, and what you are still legally liable for. The rent amount should more than cover the mortgage, tax on profit, agent's fees, voids, maintenance, etc. The yield should be more than what you could make in interest if you saved or invested your savings, especially with the risks with BTLs, the unforeseen costs and the fact you shouldn't rely on the property value beating inflation. It's a business so you should buy with your head having done lots of work first.

chrishar

Hi, I am thinking along the same lines. I own already a property I rent out and am happy to leave that way. This means I am on the so called ladder, but I also want to sort out my own place as I currently just rent a room.

So I am thinking of renting somewhere myself, and leaving my owned property rented out. This makes sense to me but probably isn't seen as tax efficient? Should I base my decisions on being tax efficient or what makes sense to me?

The only thing in the way is the cost, private renting round here is very high and I will need to pay at least £700 a month in rent to find my own place, whereas I only pay £200 a month for a room. This is quite a big hurdle to overcome but I guess it's the going rate. It's nearly 50% of my net income on a standard weeks wage!

vicarious- in your situation I think the key is whether the yield after all your costs will be better than putting the money elsewhere?