Help. Using home to fund a house purchase

billy2shots

Current situation

- Mortgage free on a home with a value of circa £325-£350k

- 36 years old , married with 2 children.

-Household Income £56k per year

- would like to buy new property currently for sale at £425k

Objective

- Purchase the second property which will be the family home and rent out current property.

- Be as tax efficient as possible

Challenges

- Increased stamp duty rate for purchase of second property. Exaggerated because I'm doing things backwards and buying a more expensive property as a second home.

- Total borrowing would be £450k
- I would effectively need a £200k mortgage on property 1 valued at £325k and £250k mortgage on property 2 valued at £425k. With my income (and potential rent income from property 1, £1k a month before tax) I'm not sure I would secure the finance.



Help!!!

Does what I'm proposing make sense and is it realistic?

How would I even go about something like this?

If it is feasible, are there more tax efficient ways to go about things than others.

In my mind it's simple. Sell property 1 and buy property 2 meaning a much smaller total mortgage and less stamp duty. The Mrs however is very reluctant to sell the home where we married and the kids were born.

Mutton_Geoff

Why complicate your life, increase your debt and force yourself into a business you don’t know much about for the sake of nostalgia?

billy2shots

Mutton_Geoff wrote: »

Why complicate your life, increase your debt and force yourself into a business you don’t know much about for the sake of nostalgia?

I'm willing to look into it (which is why I'm asking here) if it makes my wife happy and if it makes financial sense in the long term.

AnotherJoe

Have you done the maths on being a landlord? Including the higher interest rate on your mortgage you'll be paying due to havinga worse LTV? The extra tax you'll pay on the rental Income? How long will it take to earn back the additional £13k from your profits ? (Not the income!)
Are you aware of all the legal requirements of being a landlord? Have you considered that strangers will be living in the place and perhaps not treating it as you would let alone worse case.

datlex

billy2shots wrote: »

Current situation

- Mortgage free on a home with a value of circa £325-£350k

- 36 years old , married with 2 children.

-Household Income £56k per year

- would like to buy new property currently for sale at £425k

Objective

- Purchase the second property which will be the family home and rent out current property.

- Be as tax efficient as possible

Challenges

- Increased stamp duty rate for purchase of second property. Exaggerated because I'm doing things backwards and buying a more expensive property as a second home.

- Total borrowing would be £450k
- I would effectively need a £200k mortgage on property 1 valued at £325k and £250k mortgage on property 2 valued at £425k. With my income (and potential rent income from property 1, £1k a month before tax) I'm not sure I would secure the finance.



Help!!!

Does what I'm proposing make sense and is it realistic?

How would I even go about something like this?

If it is feasible, are there more tax efficient ways to go about things than others.

In my mind it's simple. Sell property 1 and buy property 2 meaning a much smaller total mortgage and less stamp duty. The Mrs however is very reluctant to sell the home where we married and the kids were born.

billy2shots wrote: »

I'm willing to look into it (which is why I'm asking here) if it makes my wife happy and if it makes financial sense in the long term.

Seems to me your wife is happy with things as they are. You are bringing in a decent income and don't have a mortgage. Why get into unnecessary debt?

xylophone

Does your wife actually want to move?

Would she want to rent out the property which has so much sentimental value to her?

billy2shots

That's the crux of the issue. I think she likes the idea of moving but panics when push comes to shove.

With a 6 and 8 year old more space will be needed in the future. My current roof will need replacing in the next 5 years. The master plan was to extend our current place , add in a loft extension (over new rear extension as well) and modernise throughout. £80k-£100k of work. I am saving hard and hoped to be somewhere near in 4 years.
I'm worried that we will end up with a home too big and expensive for the street meaning we will never see the outlay back when we come to sell. Plus the fact a !!!!!!!ised place is never the same a purpose built home. Which leads to us talking about moving every so often.

We have a Ltd company of 2 care homes and I manage 1 on a day to day basis. I'm used to landlord certificates, insurance, having people live in the places we own. I'm not sure I want the responsibility for yet another property and the maintenance involved.

pinklady21

If your wife doesn't want to sell it, why do you think she would be happy to let it to someone she doesn't know?
What will the conversation between you be if the tenants trash the place?

billy2shots

Went to see the house today along with 6 other viewings before and after us. There was an open house last week with a lot of interest apparently. I know it's normal for EAs to exaggerate the demand to tempt bids. This time I believe them because I saw 2 families leave before us and the next couple arrived when we were there.

My wife is very keen on it as am I, she understands that we would need to sell to make things affordable.
I have no doubt this house will go before we can get ours on the market and sold.
We do have an option although I feel guilty with what it involves.

Plan B

- put our current home up for sale whilst making an offer on new place.

- Make an offer and if accepted

- My dad has offered to loan us £200k (the guilty bit)

-Take a £250k mortgage which allows overpayment

- pay the higher rate stamp duty for the second home.

- move in and then spruce up my current property if I have had no offers.

- when sold then pay my dad back, overpay a chunk off the mortgage to bring that down, claim the higher rate stamp duty back.

Looks simple on paper but I'm not sure I need the stress of having a property that might not sell for a while given Brexit and time of the year.

Slithery

billy2shots wrote: »

- My dad has offered to loan us £200k (the guilty bit)

-Take a £250k mortgage which allows overpayment .

Have you found a mortgage lender that will agree to this?

billy2shots

Update


Having spent time thinking about everything we have decided we do want to move and my wife does agree and want to sell our house.

We have our heart set on the house that is new to the market and we want it.
Ours isn't even on the market so the new conundrum of the day is how do we raise the finances in the short term until ours sales.

We have a shortfall of £240k that we need to borrow.
Before I do a DIP I have tested s few calculators which suggest a max borrowing of £230k. I'm also led to believe this will be reduced due to the fact I will be running 2 homes (all be it temporarily).

I'm stuck whether to push ahead with this or try another route.


Alternative.
My current mortgage free home is valued at £315k- £340k.
I'm thinking about the logistics of raising the £240k I need against this home in the short term.
My concerns are that it would push me into a higher LTV product and the fact the loan is secured against that property so when it sells am I expected to clear the loan or like a mortgage (with the ability to port) can the loan be ported against the new property.

I fully understand the risks of mine not selling in the short to medium term.
I'm also aware that I should get a buyer for mine in place first however we looked for places for over a year until recently and nothing came up. We have a very narrow search criteria. This place came out of the blue when we had given up and taken ours off the market. It is very well valued and similar homes seem to go within days/weeks meaning we need to act fast to secure it.

Any help much appreciated