Considering options - btl and my own house

Squiggly_Diddly

I'm currrently confusing myself trying to think about different options (maybe to put into action in the next year or two). I will be 50 (:eek: how did that happen) in November.

I own my house, worth approx £225k, with a 20 yr mortgage of £111,000 (taken out Jan 18). Still needs a bit more doing up (was a probate sale) but an ideal 'rental' type of house.
I would like to live in a flat (can't afford a house) looking directly over the water in a nearby harbour. Also the maintenance/ground rent charges are so high I would not want to purchase. So preference is to rent there.

Ideally I would like to turn current house into a tenanted property, release some equity (so increase a mortgage) to buy a second property about 50 miles along the coast for my sister & her family to rent. Various reasons - and yes it would be done 'properly'. I have been guarantor for her for last 10 years and trust her implicitly, so all I need to know is if/how I can go about this.

I'm currently on a fixed-term contract role, was planning on going into locum work either next Feb (or June) when the contract ends, but can easily pick up a permanent job in my field if absolutely necessary.

I just cannot work out if this is all do-able (I know normally for BTL you should own your own property but I do - it's just that where I then want to go and live I would prefer to rent!). But I'm trying to find a way of keeping current house & buying a second as BTL. If someone with a 'fresh pair of eyes' can suggest how/if/what I could work towards, that would be great....

Thanks

Mutton_Geoff

Squiggly_Diddly wrote: »

the maintenance/ground rent charges are so high I would not want to purchase. So preference is to rent there

Why? You'd be paying them anyway albeit through your rent.

Bossypants

You'll struggle to get this through without a permanent job, no matter your other sources of income (I know because I tried it). It also sounds like you'd be going for the lowest possible equity deposit of 25% in both cases, that may make it hard to turn a profit even on an interest-only mortgage, and if you opt for one of those, how do you plan to pay back the loans at the end of their terms?

To me, what you are describing seems like a lot of hassle for the sake of just barely breaking even. If you are determined that you don't want to live in your house but want to own a property to rent to your sister, I would look at selling your current place and using the equity to put a 40% deposit on the BTL. This will give you access to significantly better rates, while you can find a place to rent for yourself as you choose. Two BTLs at 25% each is not something I would be getting into in this climate, that's for sure.

Squiggly_Diddly

Thanks Bossypants, that’s a useful perspective, I’m turning ideas & thoughts round & round but only want to do something if it’s reasonably sensible. If I can’t do it then it’s not the end of the world but would be nice if a plan did come together. The other alternative is to pull equity out of this later on (repayment mortgage) & use as a deposit plus whatever savings I could add to it. But we’ll see.

MuttonGeoff, yes that’s true but I also like the freedom of being able to move elsewhere with few ties.

It’s all just thoughts currently...

tlc678910

If you sold your current property would the 110k of equity allow you to buy the house for your sister outright? With the rent payments you receive you could subsidise your own renting (after tax).

It sounds like you might be a higher rate tax payer? If you are then mortgage interest is no longer fully deductable as an expense and you pay tax on mortgage interest as income and receive a 20% credit back against it. If you are a higher rate tax payer you don't want 2 big by to let mortgages as you can make no profit at all and still have a tax bill putting you into negative. If you own outright this issue won't affect you.

You could then concentrate on saving up a big deposit if you want to buy a home or a further buy to let in the future.

Buy to let mortgages also don't like you to let to family but there is no issue if you own outright.

Edit: just to add when determining if you are a higher rate tax payer your rental receipts are added to your income so with two properties rented out rental receipts could easily push someone into higher tax payer bracket.

franklee

You would have to let any prospective lender know you will be letting to close family as not all mortgages will allow it. The reasoning is that you won't treat family in a professional manner e.g. evict them if they are in rent arrears. It's fine that you trust your sister but her circumstances may change in an unexpected way and the bank doesn't want bad debts and doesn't know your sister.

You should know what effect if any renting from her brother would have on any benefits she gets or may need in future especially as you would be buying the property specifically for her to rent. I have no idea if that would be an issue or not.

Your plan sounds too eggs in one basket to me having everything in let properties. What would you do if a tenancy goes bad? You could have up to six months with a tenant and no rental income.

I guess you could start by seeing a mortgage broker.