How much can I lend? BTL + personal mortgage

lovinituk

99rb99 wrote: »

Would stamp duty still apply, as it will be my old house that will change to a BTL (therefore I already own it, so wouldn't pay stamp duty on it), and the new house will become my main place of residence, so stamp wouldn't be due on that, would it??? I've enough saved for stamp duty just in case, but from the way it is described I didn't think it would end up applying to me.

You will end up with 2 properties so yes it will apply on the value of the new house.

To avoid it you need to sell the old house at the same time. Or you could pay it and then claim it back if the old house is sold within 3 years.

Where the wording states "replacing your main residence" it means getting rid of the old one.

99rb99

kingstreet wrote: »

Unless you do the LTB mortgage with The Mortgage Works, Nationwide requires evidence of three months rent payments before it will consider something self-financing.

Then, it will only lend upto 85% because is considers the new residential a second property.

So LTB could be the way to go.
I suppose I could potentially wait a few months in between to prove the rental income, as my parents live nearby, so I could stay there. But I thought that may have gone against me from a mortgage point of view, with not owning the house I then live in.
I could still manage 85%, but I was hoping to keep a few £k to fix up the new house. :-)

lovinituk

Are you a higher rate tax payer or would the annual rent income push you in to the higher band? If so, there are other tax implications you need to consider.

99rb99

lovinituk wrote: »

You will end up with 2 properties so yes it will apply on the value of the new house.

To avoid it you need to sell the old house at the same time. Or you could pay it and then claim it back if the old house is sold within 3 years.

Where the wording states "replacing your main residence" it means getting rid of the old one.

Ahhhh, I see :eek: , I've googled the whole stamp duty thingie to try to make sense of it. I should have just asked the question on here first. I didn't want to ring any mortgage companies, until I had things clearer in my head first :-)

99rb99

lovinituk wrote: »

Are you a higher rate tax payer or would the annual rent income push you in to the higher band? If so, there are other tax implications you need to consider.

No, I'm only on £25k, so I'm a long way off yet :-)

lovinituk

99rb99 wrote: »

No, I'm only on £25k, so I'm a long way off yet :-)

That's makes it simpler. You would just need to complete an annual self assessment tax return to declare your rental income and pay the relevant tax on profit.

99rb99

lovinituk wrote: »

That's makes it simpler. You would just need to complete an annual self assessment tax return to declare your rental income and pay the relevant tax on profit.

Yes, my way of thinking is (ie my dream), is to try to get near the upper tax threshold with property (obviously it will take years & years to build anything up), and then re-think things at that point :beer:, given the changes in tax relief.

MonkeyDr

Another way to look at things:

I don't know what you spend on the refurb (in addition to your own time), but if the property really is now worth £110k you could sell and make a profit of 30k minus (selling costs + refurb costs). Not a bad 12 month investment.

Whereas if you let it out, your total income will be £5,400 pa (based on 450 / month).
From that, you will pay a minimum of £1600 on an interest only mortgage (based on 80k at approx 2%, 25 years), plus having a booking fee added on to the mortgage.
Let's assume you find your tenants without an agent and manage everything yourself (so are available every day if needed), you will still have to pay a couple of hundred per year for things like inventory, gas check, credit check etc. Plus insurance.
So you're down to maybe 3500pa.

Then the boiler has a problem, the toilet gets blocked, a tile blows off the roof... Wouldn't be unreasonable to put aside £500-1000 pa for repairs.

Most tenants are decent people, of course. But what if your one doesn't pay, or causes lots of damage? And I remember from being a tenant myself that I really didn't look after things with as much care as I do with the house that I own.

After a few years things do get tatty and you need to repaint, get new carpets etc etc, so you need to save something each year to cover that.

Oh, and you will need to pay extra stamp duty of close to £3k on your new property. So even if you have model tenants, no vacant periods, no repairs to pay out, you make close to no profit for the first year anyway.

Then interest rates rise. At 6% your IO mortgage for £80k is £400 a month. So actually, you would fail the stress test now anyway. And unless your rental income has gone up significantly over the same period, you now only clear £50 /month, can only just pay for the basics, and are in trouble if there are any voids or need to pay for any maintenance.

Let's guess that you spent £10k on refurbishment over the last year (obviously just plucking this figure out of nowhere). If so, then you could walk away now with a profit close to £20k.

It could take you maybe a decade of hassle of being a BTL landlord to achieve the same figure the other way. (unless you are banking on property price going up further, which isn't an easy prediction).

I know what I would do in your situation.

99rb99

MonkeyDr wrote: »

Another way to look at things:

I don't know what you spend on the refurb (in addition to your own time), but if the property really is now worth £110k you could sell and make a profit of 30k minus (selling costs + refurb costs). Not a bad 12 month investment. .

Houses don't typically sell that quickly in my area (even when they are prices correctly), so I had thought of maybe trying to sell it for a couple of months first, and then if there were no takers then I could rent it out. I think that could be a good move.