Second home or sell the first?

El_Selb

My fianc!e and I are looking to buy our first house together (for around £450-550k we think). She already owns a flat (valued at about £300k, with about £200k on the mortgage).


Back in the old days, the idea would of been to keep the flat and allow renters to pay off the mortgage. But with the tax changes impacting the rent we'd receive, we understood having a second home in this way no longer makes financial sense. But recently we have spoken to a few people that still believe we should hold on to the first place too when we buy a second (obviously as long as we can make the payments). Which has left us a bit confused.


I am very new to this house-buying business but am just wondering what opinion is here?

Thrugelmir

El_Selb wrote: »

Back in the old days, the idea would of been to keep the flat and allow renters to pay off the mortgage. But with the tax changes impacting the rent we'd receive, we understood having a second home in this way no longer makes financial sense.

In the old days. Capital gain was where the profit was made. Net rental income ( after costs and tax) more often didn't generate enough profit to repay the debt.

Teamocil

The people advising you to keep the other place are expecting you to break up.

enthusiasticsaver

Your fianc! already has a mortgage of £200k so it would be extremely unwise to buy another property and take on another mortgage unless her income is high enough to sustain both mortgages. It is less tax efficient to do buy to let and your new house will be treated as a second home so stamp duty will be doubled. Also do you have a deposit for the house or are you relying on the equity on the flat?

I would not do it. Just sell the flat and buy a house.

Pixie5740

Oh well, if "they" say it's best to keep hold of the current property then I guess that's what you should do.

Keeping hold of her current property will increase your SDLT liability on the purchase of the new property by an extra £13,500 to £16,500 so how long until she breaks even?

What kind of rental yield does your fiancee expect to make from letting her current property?

Is her flat a sought after rental property?

foxy-stoat

El_Selb wrote: »

But recently we have spoken to a few people that still believe we should hold on to the first place too when we buy a second (obviously as long as we can make the payments).

I wonder if "these few people" are landlords or just people who wish they were landlords?

El_Selb

Hmm, increased stamp duty would be a concern. Although in the long run hopefully £13-16 would become a lot less significant.

The flat is in quite a sought after location. Mortgage is £600 and rental income would be about £850-900. We'd then suffer income tax on that and only just be able to pay the mortgage before the other expenses of running a property?

Deposit on the second would indeed be the equity on the first...

Combined our income is around £120k

tlc678910

Hi,

If we assume you make £5000 profit each year and that you pay 40% tax on your profit as higher rate tax payers this takes your profit to £3000. (If you are lower rate tax payers will you still be when you add your rental receipts to your other income?) With £3000 profit each year it will take you over seven years of letting hassle to recoup 22k of stamp duty (the rate for an additional 400k property). Edit perhaps 4 years as the additional part is 12k!) Once you factor in that the value of the property might fall with Brexit you can see why it could be more trouble than it's worth.

When calculating your profit/tax as a higher rate tax payer (including rental income) you need to include mortgage interest as profit at 40% tax and calculate a 20% credit back against the mortgage interest part.

Don't be surprised by further anti landlord legislation as this has been the pattern in recent years.