Buying a second home

Andy_89

Hi,

I have had a plan for a couple of years to, in another couple of years, buy a second home. Renting out my current home in the process. Generally to create a proverbial pension pot in the form of (on the most part) an appreciating asset.

Only recently I have had the thought to simply release the equity in my current house to buy a bigger and better house.

I am after an honest opinion on which is the better option?

a) keep my current house and rent it
b) release the equity in my current house to put towards a smaller mortgage and/or a bigger house.

Thanks!

Tixy

If you have a residential property and a buy to let property then generally you want a higher mortgage on the buy to let property and a lower mortgage on the residential property (because the interest on the BTL mortgage is tax deductible from the rental income).

Pixie5740

What market are you aiming at? How to the figures stack up for the two options you've listed? Do you even want to be a LL and do you know what that entails?

Daniel54

Andy_89 wrote: »

Hi,

I have had a plan for a couple of years to, in another couple of years, buy a second home. Renting out my current home in the process. Generally to create a proverbial pension pot in the form of (on the most part) an appreciating asset.

Only recently I have had the thought to simply release the equity in my current house to buy a bigger and better house.

Two comments to make here:

Whilst a BTL can be a useful "extra" for retirement planning,it is too inflexible to rely on ( as you cannot draw down both capital and income ) and tax- wise is much more inefficient than paying into a pension

Before the comparatively recent fad for BTL, the majority of people never thought to do anything else than trade up because a) it improves the quaility of life for yourself and your family and b) there will never be any capital gains tax payable

Andy_89

Thanks for all the help.

The OH and I already pay the maximum amount into a pension fund, so this 'idea' wouldn't be our only hope.

We are both quite low in terms of our pay grades in our respective jobs, I am junior management so the sky is the limit for me. We currently pay around 25% of our combined monthly salary for an inflated mortgage (Halifax were the only ones who would lend to us at the time) This will drop to around 20% given my wage rise and renegotiation in 2016.

We get married in 2015 (nearly paid for) and have no plans on having kids until 2019 onwards.

Other than holidays and gifts etc I am quietly confident that we will have a considerable amount of spare cash. Hence my question.

In terms of numbers the rental rate is approx £750/m with our mortgage at around £700 when we come to renew.

The house I saw would be around £1,500/m for the mortgage, a bit more of a stretch but would still leave some of my income and all of hers for contingencies etc.

Foxy-Stoat_3

Your rent needs to be at least 25% more than the mortgage, take into account all costs associated with renting, voids and un-paying tenants, re-decorations/repairs, worst case. Do the sums if you sell or if you keep hold of it, worst and best cases.