Can we afford to move and keep our property?

chocolatepickle

With 2 children we have really outgrown our first home and are looking for somewhere bigger where I can work from home instead of renting a high street workplace- the money I'd save on rent would go toward our new home.

We have a 2 bed property valued at around £240-250, our remaining mortgage is £48,000.
My salary is around £16,000 and my husbands is around £42,000- we are both self employed and have been since before our first mortgage.
We've never missed a payment and have overpaid by the maximum amount allowed (10%) for the last three years, we have little debt- £2000 on husbands credit card.

What we'd like to do is keep hold of our current property- so rent that out for hopefully around £900-1000 per month and move to a new property- the cost of the kind of property we want is about £325-350.

I am struggling to find anything to give us indications of how much we could borrow, how we release money from our current property for a deposit etc.

Can anyone tell me if what we want is realistic?
Thanks!

ACG

You can lend around 4.5x your income - if you are self employed and this varies annually then it would be an average of the last 2-3 years usually.

So assuming £58k then you get around £261,000.

You can take out a Buy to let mortgage for upto 75% of the property value, meaning after your current mortgage you would have around £132,000.

So £325-350k should be within budget.

Pixie5740

You will have to pay an additional £9,750 to £10,500 in SDLT due to the additional residential property surcharge. (Just in case you hadn't factored that into your calculations yet.)

Thrugelmir

If you had no income from letting the property. Would you sleep comfortably at night with £350k of debt to service?

As you are both self employed what pension provision are you making for yourselves? Something I would consider carefully before adding a BTL property to the portfolio.

chocolatepickle

Thrugelmir wrote: »

If you had no income from letting the property. Would you sleep comfortably at night with £350k of debt to service?

As you are both self employed what pension provision are you making for yourselves? Something I would consider carefully before adding a BTL property to the portfolio.

To be honest, we are hoping this will be our pension.



We are in an area where house prices are going up much faster then elseware in the country right now and we need to move- there is no question about that- we need a bigger home.
But in an area where property is renting out before it goes on the market I think we are currently in a good position- if lenders will allow us a second mortgage.
We could sell the flat yes, but as you say, we are self employed and need to think about our pension options- this to us seems our best chance.

getmore4less

Lets look at the rental.

£240k-£250k £900-£1000, gross yield 4.32%-5.00%
This is not brilliant.

if you add in the additional costs for the yield will be lower adding just the Stamp duty £10k 4.15%-4.80%

Rental cover there is at least one lender on 1.45x @ 5.5 that will release £135k-£150k
if we ease that to say 1.25x @ 5% £172k-£192k
75% LTV will be £180k-£187k

if you say got £180 @ 4% that would be around £600pm not leaving much to cover the costs and voids. there are cheaper options on 2-5 y fixes but this may limit the amount of cash you can release.

This is one for a good broker to optimize.

I think I would be looking at the business plan for this letting business carefully, with the intention to reduce the risks of a cashflow crisis due to the unknowns ASAP, If you can release the capital and get a decent rate and get a reliable tenant this could be sorted in 2y but might need 5 before it has cash buffer and is generating the income to start reducing the debt(the goal if it is part of a retirement planning, generate income no debt).

Structured properly you should be able to get Tax relief up to the full value at entry to letting.

With 2 houses you are going to need cash left over to act as a buffer till the surplus rental has build up so the letting business is self sufficient so plan that carefully

How much cash you need on hand will depend on the total generating capacity of your let and other business but with two properties £10k would be my min.

This could make an offset worth considering for one of the debts to hold and manage cashflows.


Don't forget that if you keep this property as well as the extra Stamp duty you may have a load of other costs buying replacements for all the stuff you will be leaving in the let.