Buying 2nd house, letting 1st house - initial affordability/sanity check

pete96

Hi,

I'm just thinking ahead to when me and the wife come to upsize and buy our 2nd house together (in probably 2-5 years time), whether it is a feasible ideal to try and hold onto our 1st house for rent as a potential investment/retirement fund, as well as buy a 2nd house.

We are both quite prudent with our money, but we are still very much noobies when it comes to the wider understandings of mortgages and property investments. So I'm just after some broad brush advice/sanity check at this stage to tell me whether this idea is just a dream or could become a reality.

About us:
- Both 30 with a current total gross income of £62K
- Only debt will hopefully be the mortgage
- May have a sprog or two by then
- We both own a car each, plus I have a "weekend/trackday" car (worth about £20k), none of which we owe money on.

Current house:
- 2 bed semi, attached garage, off-road parking x3, good size rear garden, v.quiet cul-de-sac, great location for motorway
- Purchased in 2013 for £158K
- Mortgage was for 25 years @ 3.74%, we pay £689/month, with £119K outstanding
- Zoopla estimate currently has it valued at £203K with a £900/month rental

2nd house:
- 3/4 bed semi/detached, in a slightly better area.
- Looking at the current market, the kind of house we'd be looking at would be in the region of £300-400K

In terms of a deposit for the 2nd house, I'd like to assume that we would have very little cash, but an estimated c.£100K in equity and if needed, at least £20k cash from the sale of my 2nd car.

I don't really have a clue when it comes to getting a 2nd mortgage, or buy to let mortgages, or even if we can use some/all of the equity in the first house as a deposit for the 2nd. Then there is all the nitty gritty details such as taxes, stamp duties, letting agent fees etc, but probably not worth getting into that much detail initially.

Thanks in advance for your advice.

Bluebirdman_of_Alcathays

The SDLT alone will be £22k on a £400k house, so you'd need all your car sale and more. Ignore the zoopla estimates they aren't worth the pixels they are written on. What have houses actually sold for near you? A mortgage broker will be the best person to advise how much you can secure against your first property.

Cakeguts

Depends where the two bed is. In some areas tenants don't want expensive 2 bed houses. They prefer cheap 2 bed houses or flats. You have to research the market for rentals in your area. Not every house makes a good rental property.

nubbins

I would say a dream especially with new BTL affordability testing coming in post Jan. As I understand it the maximum you will be able to borrow will be approx 150 X monthly rent (currently 175) so at your £900 rent you will be looking at leaving most of your equity in the first house to be able to get a BTL mortgage on it.
To then get the second house at say 350k you will need probably near on 100k in deposit,stamp duty and various fees (both resi and BTL)

movilogo

Your main problem would be to raise the deposit for 2nd (=new) house.

We both own a car each, plus I have a "weekend/trackday" car (worth about £20k)

Those who spend money on depreciating asset would struggle to buy appreciating assets

AdrianC

For the sake of round numbers, let's assume the original property is worth £200k, with £100k in equity, and you want to buy a £400k property, and that you can fund all the fees, SDLT etc in cash.

So you leave the minimum in the first property to get a BtL mortgage on it - 25%, £50k. You now have a £150k mortgage on that.

You now have a £50k deposit on the new place, and need a £350k mortgage on it. Do you earn enough to get a £350k mortgage?
The simple answer is... no.
http://www.moneysavingexpert.com/mortgages/how-much-mortgage-borrowing

Now let's go back a step.
You're thinking of letting your current property. What rent would it fetch? How does that compare to the cost of borrowing? What yield?
You would be looking at an additional 3% SDLT on the £400k property - £12k. How long will the rental profit on the first property be wiped out just by covering that?