Sell House or Buy To Let Before Moving to New House

The_Palmist

Hello Fellow Forumites,

Hope everyone is doing well. I am after some advice here before approaching banks.

Current House Value: £135K - £145K [Paid £122K in 2011 and since added new doors, windows, conservatory, landscaped gardens, total cost is £155K so my value is based on that]

Current Outstanding Mortgage: £74K

Current People Earning: 1 just me
Current Annual Salary £49K
Dependants: Wife and 2 Kids


New House We are Looking at is priced at: £250K [not started negotiations yet]

Cash Available: £70K


Ideally, I want to keep the existing house as an investment or buy to let. Any suggestions if that is possible at all and if banks will be interested to lend me more money on the basis that I will be letting the current house. And if I need to change my current mortgage to BTL or LTB?

I am aware of the risks associated with letting, is there anything else I should be considering.

Any other expert suggestions or advice will be most welcome. I will be booking in some appointments with Banks soon, in the past I have found the bank guys to be less informative than forum members.

regards,
Palmist

chelseablue

I've never let out a property before but I would advise seeing a mortgage broker, not just going into the bank

I'm sure one of the experts on here will be along shortly

The_Palmist

hello guys,


I started applying online for an AIP but Halifax would not entertain online AIP for second home.

Any thoughts.

getmore4less

have you checked you can make the rental cancover its costs

Start with your gross yield remember tax is going to be based on revenue and tax relief on interest is restricted.

Then review the tax on the income and get a better idea of net income to run the letting business.

Don't forget the SDLT is £10k not £2.5k

find a broker,

Pixie5740

The value of your property has very little to do with how much you have spent tarting up the place. Look at sold prices for similar properties in your street in the last 6 months for a better idea of the current value.

If you want to release equity from your current home then you would need to consider a Let-to-Buy mortgage otherwise you could just apply for Consent-to-Let from your current lender but really you should discuss your options with a mortgage broker.

Is it safe to assume that you have already considered the higher rate of SDLT, rental yeilds and profits since you have already decided that letting out your current home is a good investment?

getmore4less

I think a good question to ask yourself is.

If I did not already own this home would I buy it and start a letting business?

Thrugelmir

The_Palmist wrote: »

if banks will be interested to lend me more money on the basis that I will be letting the current house.

Unless you obtain a guarateed income stream from the property then no. Build some more equity/savings first.

mrsammyp

You really need to consider whether your existing home is the best vehicle for the buy to let market; research how many other similar properties are on the letting market, how long they've been up for let, rental income etc.

You need to consider stamp duty, which on £250,000 property will be £10,000 instead of £2,500 for a second home.

Taxation on BTL is only getting worse.

Based on your circumstances and talking as a landlord, I'd advise against it.

Typhoon2000

Definately see a broker. Get a BTL on the first property and new mortgage on the new place. Doesn’t sound like you need to raise cash on the BTL so you can effectively claim 175% of the interest on the BTL against tax this year dropping to 100% in 4 years; including the interest paid on you new residential mortgage as well the BTL, up to the value of the BTL property.
So even tough you only have £74k on the BTL you would claim £155k ( assuming the property is valued at that) worth of interest against tax as you are borrowing to buy your second property.

Nationwide and their BTL subsidiary The Mortgage works have a product just for your scenario but a primer will give you other options.

Interest on the BTL will be in the region of £140 a month, so on your salary any void period should not be too taxing ( especially as you can claim tax relief on that so more like £80 a month after 4 years)

dimbo61

KiMost if not all BTL mortgages are only available via a mortgage broker.
You need a " business plan "
Which is why I come back to a broker.
What sort of rent could you hope to achieve from renting the property ?
As you own the property in joint names you can change ownership to tenants in common so your wife owns say 90% and you 10%
Good for tax reasons.
However you are looking for a second mortgage ( with a good deposit )
Extra stamp duty to be paid
Do the figures stack up ?
Do you make a profit from renting out your old home.
Are you better off selling and putting down a big deposit or taking an offset mortgage.
Being a Landlord is a pain in the b u m at times.

The_Palmist

Very helpful all of you.

I will answer all the above below.

Higher SDLT: Thanks for pointing out folks, no I was still thinking 2500 but 7500 is still manageable, it means I am going in with a low ball offer to begin. Offered £200K and it is being considered so best case scenario for me is meeting half way at £225K.

Property Value: Yes based on recent sales and a valuation which my neighbour with identical property [semi next to me] had from an estate agent and for safe reasons, I am actually valuing more conservatively.

Rental Prospects: I am considering renting out purely to keep the property and would be happy even if I just break even with mortgage payments. For safety, I have ring fenced 6 months of mortgage payments aside. So if it doesn't work, I will be putting it up on market. The reason I want to keep the property and potentially sell at a later date is that I expect the value to only rise as it is a desirable area.

Called bank and they are happy with 2 year consent to let which gives me enough time to test the waters.

Current Mortgage Monthly Payment is £450.00 and expected rent is £595 - £625, I am being conservative here. Similar properties are being rented for £625 - £675


Once again, you have all been great, thanks.

I am going to call Halifax this week and also look for a local independant broker.