Please help, house dilemma

taylor86

We are currently renting after moving out of our too small home. We were about to put it up for rent when we received an early inheritance.

We didn't really want to rent out the property as it was recently renovated and we didn't want the hassle of being a Landlord but we couldn't sell it for enough of a deposit to buy another home. Now we have the extra money we are considering selling the property for less, cut our losses and buy somewhere we really want while house prices are lower.

The house we are living in is a beautiful housing association property with cheap rent, it isn't really a long term option due to size. We feel we have 3 options and don't know what to do. We would like to stay in this property until the end of the summer to give me a chance to look for a job and get back to work.

1) Rent the old property as planned then sell and buy again later in the year/next year

2) Sell the property and buy now but rent new property out before we 'spruce it up' to move in

3) Sell old property now and buy later (this incurs 3% redemption fee)

Any advice? All input welcome I feel really overwhelmed with this.

Pixie5740

1) Do you have consent to let from your lender to let this property out? Personally I'd say that it will be a lot of hassle for you to find a tenant and then try to get them out again in 6-12 months time so you can sell.

2) If you want to buy a property and let it out from the get go you will need a BTL mortgage. You then cannot live in a property that you have a BTL mortgage on so would have to convert it to a residential mortgage.

3) How long would you have to hang on to this property to avoid the 3% redemption fee? I'd go for this option so that this property is sold and you know exactly what your budget is for your next home. It also means that you won't already be part of a chain when you come to put an offer in on your next home which should put you in a stronger position.

taylor86

The redemption fee reduces to 2% a year from now then we are out of the fixed in April 2017 so we still have a way to go. Yes we have consent to lease for this property.

I hadn't thought about the mortgage implications for renting a new house, thanks for that.

fairy_lights

2. is a bad idea - if you're planning on renting before sprucing it up to move in yourself, what makes you think you're going to find tenants who want to live in it in it's unspruced state?

I don't think 1. is a particularly good idea either, if you rent out a house, (either your current one or a new one) it's only going to be a temporary measure until you want to move yourself. It's not really fair to chuck a tenant out after potentially a very short tenancy, and you could end up with a tenant who can't/won't move out which will really scupper your plans.

Unless you really want to be a landlord and are in it for the long haul I would definitely go for number 3. Much less stress and because you are currently renting you will be able to take your time finding somewhere to buy that you really want to live.

Pixie5740

If you're seriously considering Option 1, sit down and do the sums. How much money could you make (or lose) letting the property out versus the early redemption fee. The latter option is obviously the most hassle free route but if you can make enough money letting out the property to make it worth your while and you have the resolve to be a LL then Option 1 could be a goer.

My vote is still for Option 3 though.

JimmyTheWig

I'm slightly confused.
Are you saying that you've moved from a house that you owned that was too small to an HA house that is also too small?

Option 2 sees you buying a house now but not living there for a while. Is there any reason why there is no option to buy a house now and live in it?

taylor86

Thanks for all your comments, I really appreciate another perspective on this.

Jimmythewig the house we left was a tiny 2 bed starter home, it was far to small for 4 of us. Finances were extremely tight and we're were offered a bigger (but still 2 bed) property which eased the burden. Since then hubby has had a promotion and I am very likely to return to work in the next month or so.

We wanted a few months to sort our finances out and me to get back to work before we took on another mortgage hence the reluctance to buy and move in now but I suppose by the time we sold and bought again realistically it will be a good few months anyway so that is probably the most sensible option.

JimmyTheWig

I believe that there is some timescale between selling and buying where you don't have to pay the ERCs on the mortgage.
I think you pay the ERCs to redeem the mortgage, then when you buy the new place and port the mortgage x months later you get the ERCs back.
Probably varies lender to lender, though.

So you could put your house on the market now, find a buyer and get the selling process started.
Then start looking for somewhere to buy.

taylor86

With our lender our it is 3 months so I suppose if I put the property on the market shortly i could potentially drag the purchase out until the summer which should give us the time we need. Thanks so much for the comments.

JimmyTheWig

taylor86 wrote: »

With our lender our it is 3 months

Ooh, that doesn't give you long.
If it was me I think I'd play it safe and buy and sell at the same time.

What is your mortgage rate?
If around 3% that gives you a year to pay the mortgage on the empty property to break even with paying the ERCs.
(Though obviously there are other costs to keeping an empty house, but you know what I mean.)

taylor86

The rate is 2.89% and remaining balance is 95k. I see where you are coming from with that thought. We have been in a similar situation before where we didn't want to lose our buyer so rushed through a purchase and really regretted it.

We have to get this move right and it's been a stressful few months leaving our home only to know we could have stayed and saved all this hassle.