Let and rent?

chrishar

I am wondering whether to adopt a 'best of both' strategy. I decided to let out my only flat last year with consent to let and had the intention of buying another flat to live in at some point. Right now I am just renting a room and saving a fair bit each month, but I cannot stay here much longer, plus I want my own space back.

However, due to the stamp duty increase and mortgage costs I have worked out it will cost well over £10k in fees alone to achieve the original plan. That's just £7500 stamp duty and £2000 buy to let mortgage fee. There would also be the fees for getting my own mortgage on the new flat.

So I am wondering whether to rent a small one bedroom flat, for the same sort of price as the rent I am receiving on my first flat is. This would kind of be a best of both worlds situation as I could still be on the property ladder but also have the freedom to move if I wanted. My flat now is let to someone who has settled in and wants to stay for the long term.

Does this sound like it could work, or should I stick to my original plan of buying a second flat and take the hit in fees? It just seems crazy to pay over a years worth of rent in fees just to get the keys to a second flat?

Thanks for all replies, Chris

Landlord2b

I would buy and pay the fees, in a year or two prices could rise and cover the cost of the fees. If you rent that will only go up in years to come. So i don't think your best of both idea is that good.

kinger101

If you can live in your own property (e.g., it's the right size, right location, and you can legally evict the tenant) then it's much more sensible to do this than rent somewhere. The reason being, for CGT purposes, you're entitled to principal private residence relief on your own home.

The fact the tenant seems settled is not a good reason to hand HMRC £7,500 in stamp duty.

Landlord2b

I think if the OP has enough equity to put at least 25% down on each property then in the long term it should pay off, the tenant pays the mortgage on the first one and OP lives in the second with a lower payment as a mortgage than the cost of renting privately.

zagubov

We did this when we were moving once. It's complicated.
Our tenants were good and we had to get an accountant to look after the tax.

We were still househunting and couldn't get a second tenant in when our first was ready to move it (it was a six-month let). Left us with a void and made us get our skates on to move.

Nobody was trying to make trouble for us but it was still troublesome being both a landlord and a tenant. Had to replace broken washing machine, delivery men let us down. Landlord's gf wanted him to sell, with us moving out early.

It was helpful for us as our house had gone up in value much more than the houses we were looking to buy. We also found out that we couldn't get used to a really great house that was in a dead location. Worth it for us, probably not for everybody.

Have you room to take in a lodger? That might be a better (and definitely easier) step to more money with less of the hassle.

Landlord2b

Depends if OP wants to live with someone. It might make sense to sell your flat and buy a new house with as many rooms as you can afford to rent to lodgers?

chrishar

Thanks for your opinions. I would rather live by myself so lodger is probably out of the question. I feel a bit unsure about paying rent but then I think I am receiving rent as well which offsets it. Plus I remain on the property ladder. Buying a second property feels like a big commitment and the fees are high which I'll never get back. In the long term it could be a good investment though.