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Buying a second property

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Good morning!

I’m looking for a bit of advise on buying a second property. We currently own a house which we bought last year (using 10% deposit) however, in the next couple of years were hoping to rent this current house out and buy a second home for us to live in.

I know that if you buy a second house to rent out you are subject to 20% deposit however when buying a second home to live in you can use a minimum of 5%.

Is anyone able to help in normal terms, if we bought a second property and rented out the current, how it would work in terms of stamp duty etc? How much stamp duty would we pay on the second property? And how much of the profit on the first home would we be paying on tax?

Thanks!

Comments

  • Pixie5740
    Pixie5740 Posts: 14,515 Forumite
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    Good morning!

    I’m looking for a bit of advise on buying a second property. We currently own a house which we bought last year (using 10% deposit) however, in the next couple of years were hoping to rent this current house out and buy a second home for us to live in.

    I know that if you buy a second house to rent out you are subject to 20% deposit however when buying a second home to live in you can use a minimum of 5%.

    Is anyone able to help in normal terms, if we bought a second property and rented out the current, how it would work in terms of stamp duty etc? How much stamp duty would we pay on the second property? And how much of the profit on the first home would we be paying on tax?

    Thanks!

    The amount of deposit required for the next purchase will depend on your financial situation at the time. A 90% LTV on one property and 95% LTV on the other sounds highly leveraged to me. How much have you actually thought this through and what research have you done so far?

    Have you identified the target tenant for your current home?

    Is there a lot of demand for your current home as a rental property?

    What kind of rental yield do you expect to make?

    Do you understand all the legislation you will have to comply with to be a landlord?

    Given that we have no information about how much the next property will cost it is impossible for anyone to tell you how much SDLT you will have to pay. What I can tell you is that since you will be purchasing an additional residential property you will pay the higher rate of SDLT for the purchase of additional residential properties. There are plenty of SDLT calculators available on the internet. There's even one on the MSE website.

    Same goes for tax on profit. We have no idea how much profit you will be making or even if you will make a profit based on the information in your OP.
  • AdrianC
    AdrianC Posts: 42,189 Forumite
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    Is anyone able to help in normal terms, if we bought a second property and rented out the current, how it would work in terms of stamp duty etc? How much stamp duty would we pay on the second property?
    3% of the purchase price above the normal price-dependent amount.

    And how much of the profit on the first home would we be paying on tax?
    You will pay income tax at your normal maximum rate, on the entirety of your profit. You will also pay CGT at the prevailing rate on any capital growth over the period it was not your home. There may be other tax changes in the future.


    Let's go back a bit.
    Is residential letting the most appropriate investment and business activity for you?
    Is your current house even a suitable rental property? What's the realistic yield? Is it in a lettable condition?

    Do you understand your legal responsibilities as a landlord?
    Are you able to emotionally dissociate yourself from "my old home" and treat it as what it is - a business asset?
    Can your cash flow and reserves withstand the potential expenses to evict a tenant who leaves behind substantial unpaid rent, a ruined and unlettable property, while still paying the mortgage?
  • Cakeguts
    Cakeguts Posts: 7,627 Forumite
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    How are you going to pay two mortgages if you tenant stops paying the rent?



    People make a lot of wrong assumptions about buy to let. They assume that they will get a tenant who pays the rent on time and looks after the property. Even experienced landlords cannot guard against tenants who lie. So you have got to include in your plans how you intend to pay the mortgage on both properties for at least 6 months if your tenant stops paying the rent. It can take several months for you to get to court to have them evicted so you have to plan for paying two mortgages.


    Another wrong assumption is that the house that they bought to live in will make a good rental. Sometimes they do but often they don't. If they don't you get the kind of tenant who doesn't pay the rent and damages the property so a lot can go wrong if you try to let the wrong kind of property.


    What experienced landlords do is this. They identify the market that they are going to be letting in BEFORE they buy the property and then they buy a property that fits that market and their business model.


    I am a landlord I did extensive research into what kind of properties we needed to buy before starting our lettings business.
  • G_M
    G_M Posts: 51,977 Forumite
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    ** Tenancies in Eng/Wales: Guides for landlords and tenants This thread is intended to provide information to both landlords and tenants relating to Assured Shorthold Tenancies (ASTs) in England and Wales.

    Topics covered:

    * Repairing Obligations: the law, common misconceptions, reporting/enforcing, retaliatory eviction & the new tenant protection (2015)

    * Deposits:
    payment, protection and return

    * Ending/renewing an AST: what happens when a fixed term ends? How can a LL or tenant end a tenancy? What is a periodic tenancy?

    * Rent increases: when & how can rent be increased?

    * Repossession: what if a LL's mortgage lender repossesses the property?

    * New landlords: advice, information & links

    * Letting agents: how should a landlord select or sack?

    * Lodgers: advice & links for landlords & lodgers
  • csgohan4
    csgohan4 Posts: 10,597 Forumite
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    "It is prudent when shopping for something important, not to limit yourself to Pound land/Estate Agents"

    G_M/ Bowlhead99 RIP
  • steampowered
    steampowered Posts: 6,176 Forumite
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    edited 23 September 2018 at 3:32PM
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    20% deposit for BTL and 5% deposit for residential is the absolute bare minimum. You'll pay high rates on the mortgage at those levels. Even if the lender does consider that your income is high enough to let you borrow so much.

    It also sounds like you have nothing aside to cover the costs of being a landlord.

    It all sounds very high risk to me. You are trying to invest in property with the minimum possible deposits and going up to your eyeballs in debt. If everything goes perfectly it could work out but it could easily end up in you being bankrupt if you get a bad tenant, your income reduces, interest rates increase or property prices reduce.

    It sounds like you should save up a bit more equity and some cash savings before considering BTL.

    In the meantime you could consider investing your money through a stocks & shares ISA. That is much more tax efficient than investing through BTL anyway.
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