Want to buy a second house and rent out current one - but need to renew mortgage now

WhyNotSmile

OK, I'm fairly clueless about mortgages etc - our current one was arranged by my husband's financial advisor, but I think if I got clued in I could save us some money.

The situation is that we currently have a (repayment) mortgage with roughly £72,000 outstanding and 23 years to go. We were on a 2-year fixed-term rate, which will be due for renewal in February. House is worth roughly £100,000.

We would like to move to a bigger house soon (within a couple of years), and have roughly £60,000 in the bank as a deposit, for stamp duty, fees etc. Houses we're looking at are in the region of £200,000.

We would like to keep the house we're currently living in, and rent it out. Obviously for this we'd need a buy-to-let mortgage. So, our first question is, do we renew the repayment mortgage now, and can it be converted to a buy-to-let mortgage if we move in 6 months' time? Otherwise, would it have to stay as a regular mortgage and we wouldn't be allowed to rent the house out?

I've done the mortgage calculator, and there's such a huge variety of rates, and I'm not sure what the differences are! For instance, the one with the lowest APRC is 2.2%, which has repayments of £304.82 per month. Then there's one that's coming up with APRC of 3% and repayments of £339.19. I'm kind of assuming that there are other factors I need to consider here, but I don't know what they are! I know there's fixed-rate, tracker etc, but these were both tracker, I think. So do I just go for the cheaper one?!

I'm good with figures etc, just not the ins and outs of mortgages, so I'm sure I can figure it out with a bit of advise! Any tips would be helpful!

MortgageMamma

You've answered your own question - you need a bit of advice. But if you know very little about mortgages and renting out property then you need professional advice.

I'll try and help step by step but without knowing your personal circumstances in great detail this is just generic information not advice.

1. Your mortgage is up in February and you want to know whether to secure a new deal now or wait. Well whether to do that or not depends when you are planning your future move. How soon are you thinking of doing this?

2. If you choose to get a new deal from your lender and have 6 months to a year to wait before you go ahead with your plans, you can apply to your existing lender for something called consent to let. This is a temporary measure designed to allow you to move on and buy another property and continue to rent yours out. It has an end date, some lenders grant a year, others six months, some will do it until your fixed rate "tie in" expires. WHen the consent to let runs out you are expected to get a regular buy to let remortgage. You could do a product transfer with your existing lender now, or a remortgage to another lender if that saves you more money. You would only apply for the consent to let once you were ready to rent out your property.

3. With a fixed rate mortgage you have something called early repayment charges, which are a penalty that is applied if you sell your home or move your mortgage to another lender within a certain time frame. If you check your previous mortgage documents you should be able to find when your early repayment charges expire. On top of this there is usually an admin fee to redeem the loan, typically £85.

4. Renting your property out - you need to get 3 estate agents round to your house so they can tell you what you will achieve in rental income. Its best to use estate agents registered with ARLA (association of residential letting agents). The reason for this is its a condition of some lenders that they will only considered rental estimates from ARLA agents.

5. You need to go for some tax advice before you rent out your home. Letting property isn't as profitable as it used to be due to changes to taxation and the way your income is calculated. Its quite complex, particularly for your average person who is not a professional investor, so its worth paying a couple of hundred quid for the right tax advice before committing to this course of action. Failing to do so could cost you more in the long run. If you can't afford to see an accountant then this link will help you https://www.rla.org.uk/landlord/document-and-guides/index.shtml?ref=menu

6. Renting out your property could generate and income for you, and you would have to do an annual tax return to HMRC.

7;. Stay away from mortgage calculators, they are very basic and do not match the lenders criteria, which can be very complex, to your individual circumstances and objectives. You need full professional advice from an experienced Mortgage Broker. You can expect to pay a fee for this - it varies from firm to firm.

Hope this helps a bit!

MM

YHM

In addition to the above, just make sure you are aware of the stamp duty impact of owning more than one property. This, in my experience, has put a lot of people off doing what you are considering doing...

getmore4less

Forget APRC it tells you nothing useful.

Need a rental business plan before you do anything.

Will it make any money and when.

pennystretcher

If I was you.... if you are planning to buy another property after two years, fix for that period and OP your current mortgage as much as you can and keep enough on the side for deposit on the second home. You may want to check the tax on second home etc as the rental income taxes and reductions have changed over the past year or so, so you might not clear as much as you think.

Good luck with planning, glad you are looking into long term options now. Just remember that the buy-to-let mortgages have higher rates than live-in mortgages. So I guess the question remains, would your remortgage be cheaper than buy-to-let? Do your math, spend time working that out, it'll pay out in the end