House owned outright - sell or rent?

pod495

Hello,

I find myself in the fortunate position of owning my house outright.

I'm now considering upsizing and am considering my options of either selling my house to buy a bigger one or renting my current house out to help fund a new mortgage.

I'm also fortunate to have some savings so I think I could put down a deposit on a new home without selling my current one.

So i'm just wondering what sort of things people think should be considered to make this decision.

Hypothetical round figures:-
Own house worth 100k
Want house worth 200k
Got 30k saved

The option with uncertainty is the keep my home and rent it out option. Regarding that I've so far I've thought:-

• Would the rental income make 170k mortgage affordable?
• Would it make it more affordable than if sold the place and only had a 70k mortgage?
• Can I be bothered being a landlord / paying an agent?
• What about the risk of the property laying empty?
• Can i rely on rental values and mortgage costs remaining on a par with eachother for 25yrs or so?
• How does Capital gains tax work?
• Is CGT a separate issue to any tax id have to pay on the rental income?
• Wouldn't it be great to have the rental income for ever, even once the new mortgage is paid off?
• Is it imoral to deprive the maket of this FTB home?

I suppose some of these are answerably by maths and some are more about best guesses and informed decisions.

You'll gather I'm at the chin stroking end of this research but i thought i'd float the idea on here. All helpful contributions appreciated. Thanks.

Pixie5740

CGT is separate from the income tax your rental income would be liable for. Unless you can complete before 6th April 2016 you could end up paying the new SDLT for a second property which could be an extra £6k to pay.

How much could you let your property out for?

Is your £30k in savings just a deposit or will you have to deduct SDLT, surveys, solicitors fees, etc from it. In either case you're looking at a mortgage with an LTV of 85% of greater. Personally, I'd sell the current property to get a lower LTV and therefore better interest rates for the roof over my own head.

pod495

Great stuff. Thanks.


Like I say. The figures are fairly hypothetical but I appreciate the point that not puttingmyself into an inferior LTV ratio would be an important consideration.


Hadn't heard of SDLT to be honest.




edit:


Right, it's just stamp duty?

Guest101

A lender wont consider lending against a rental income which does not exist at that time.


So can you afford a mortgage on your primary income source?


Consider any rental income (less income tax) (less costs) (less repairs) (less agency fees) to be supplementary.


If you have £500 income from rent, you will see maybe £300-350, and then you may want to have a fund to pay for major repair works, e.g. a new roof.

pod495

Very good point.
Thanks.

Pixie5740

Yes SDLT is stamp duty land tax. If you search this board on the forum you'll find several threads discussing the upcoming changes to SDLT.

AlexMac

Of all the Q's you ask..

pod495 wrote: »

I'm considering my options of either selling my house to buy a bigger one or renting my current house out to help fund a new mortgage....... Questions...
[*]Can I be bothered being a landlord / paying an agent?

is the crucial one... and based on the depth of your research to date, I'd say the answer is, at this moment...

"Can I be bovvered" ... nah.... whatever!

If, however, having spent a bit more time researching the option, costs, benefits and responsibilities of being a landlord (maybe by searching and reading some of the thousands of past posts and stickies here on this site) you think it's for you...

I'd say go for it! I'm sure I'm not the only landlord on this site who got into it on an amateur basis, initially with help from agents.. but 20 years later have found it very successful, profitable and trouble-free as as a sideline.

However, I'd ask if the house you happen to own is necessarily the best one to let out (mine was, luckily; a 2-bedroom flat in a very commutable area with high rental demand and good rent levels).

And I'd also observe that I've made massively more tax-free long-term Capital Gain by buying the best primary residence I could afford and living in it!

So if you want to cut corners- just sell the existing place, buy the best home you can afford - and enjoy it!

Nobbie1967

Given that you'll effectively be borrowing money to finance retaining the old house, I don't think this is going to stack up financially as mortgage rates return to more normal levels. As someone has pointed out, you may lose out on a good rate by only having a 10% deposit rather than 50%

When you add in the hassle factor and potential for unexpected costs and voids and bad tenants it looks even worse.

When you look long term, you'll have capital gains to pay and income tax. Much better to just buy the biggest house you can afford.

pod495

This is all excellent food for thought thanks.

Well observed that my enthusiasm for this idea is somewhat casual. But I do take it seriously and it could be a goer (with much more proper research and calculation) although I'm getting the general vibe that it might not be a life changingly brilliant idea - at least not without being part of a lager strategy maybe.

And yes, that point about rates going up - rents don't tend to go up with them do they.

And of course the point about whether i'd even get a mortgage to make the plan possible could a deal breaker.

Bettiebee

I've been in this position, my house just wouldn't sell and then when it did it all fell through at the last minute. We are now looking into renting the property out. I looked into lots of options but it's our fairly decent deposit which has made it possible but it is worth checking with the bank if they will consider your potential rental income, both Nat West and Halifax were still interested in what we were expecting as rent (although it wasn't used as an income on our application as we were still considering selling). Try getting a few mortgage in principles from banks over the phone and then you'll be able to see how the figures stack up, and they can advise you for what's going to be the best option.

getmore4less

Start with gross rental yield on the place you own.
(rent*12)/value