Sell or rent?

MNM2903

We are currently trying to sell our property which is valued at 125k. We are looking at our next house and have found one we like for 185k.

Ideally we would like to keep our property and just rent it out.

It was bought using help to buy and was purchased by my partner, it's currently in a fixed term mortgage until 2020. We are thinking about adding myself to the mortgage and getting rid of the help to buy loan and rolling it up in to one with both of us on the mortgage. We are going to speak to a broker but I wanted to get an idea of the possibility of keeping this on aswell as getting the mortgage we need for our next property.

The main sum of deposit was going to come from our current house when sold and we're not sure how much equity we would be able to take from this to help fund a deposit for a second home.

Income
Salary 1 - £30,320
Salary 2 - £24,000
Child benefit yearly - £960

Outgoings per month
Nursery fees - £400
Credit card - £30 interest free with a total balance of £1476
Mobile phones - £100
Car loan - £140
Student loans - £60

Savings
Help to buy ISA - £2022
Other - £740

Current mortgage - £75,949
Government loan to be paid back is 20% of current value so 25k would need to be added to that which would mean 100k mortgage and approx 25k equity in the property.

We would need to use the equity in the property to use as deposit so @ 10% £18,500 + we would need to pay approx 2k for breaking the current fixed term agreement.

Please feel free to correct anything I have mentioned above, not 100% sure how help to buy etc works so I've based figures on what I believe to be correct.

Also the reason for the move is because this house is too small for us as we have since had a child and another on the way so just seeing what our options are, ideally would have liked to have more money saved but this sis the situation we are in and I just want to try and prevent selling a house that would rent out fairly easily and be a good investment rather than sell.

Any feedback/help is very much appreciated.

Doozergirl

You want to go from £75k in borrowings to £200k and think that's investing? I cannot imagine a way in which borrowing the entire value of a BTL is going to provide an easy life when you've got two small kids.

Have you looked at exactly how much you'd be subsidising your tenants by?

Children get more expensive. You'd be taking on a massive financial burden when your position in life is one (or two) on that will cost more and more over the next two decades.

Buy a house that suits and squirrel the rest.

MNM2903

No.

My girlfriend bought that house and we both live in it. This was 4 years ago, at that time she was earning 4k less.this was a purchase based on only her affordability only.

We have a mortgage of £322 per month for this house which is a new build, 2 bed semi detached. The rental around where we are is around 475/550. Our car loan finishes in march 2020. We can also get a mortgage with our current debt/nursery fees of around 260k. The rent would more than cover the mortgage here which is why I used the term investment.

I would have preferred obviously to have more cash behind us and fund the deposit ourselves and one of the reasons I want to try and keep this house is because I know how difficult it was for us to get on the property ladder and I can't imagine how that's going to look for my kids when they grow up.

anselld

I guess it is called a property ladder because you only need to step on one rung at a time.

I agree with DG, you cannot afford to retain both. However, if you find a way then remember to allow for the 3% SDLT surcharge and see if you can avoid the early exit fees by porting existing mortgage to the new property. (probably not if HTB but worth asking)

MNM2903

anselld wrote: »

I guess it is called a property ladder because you only need to step on one rung at a time.

I agree with DG, you cannot afford to retain both. However, if you find a way then remember to allow for the 3% SDLT surcharge and see if you can avoid the early exit fees by porting existing mortgage to the new property. (probably not if HTB but worth asking)

That was a problem with HTB we can't rent out so we couldn't avoid that fee right now. we know it would stretch us and didn't intend on moving until next year. We have our house on the market at the moment, it's been up for 8 weeks and we know if it sells we can easily afford the property we want @185k would have just been nice to keep this also, I'm under no illusions though it is a stretch, just wanted to get some initial thoughts before we speak to a financial advisor.

Doozergirl

But you will have a larger mortgage on your new house too because you own this one.

Just looking at the current mortgage payment and thinking it's making a profit when the rent is more isn't the case, you are borrowing elsewhere to fund the full value of the retained property.

You have to compare what your mortgage would be in a new house without retaining the existing house and then do the maths on what extra you have to find/give to HMRC as a result.

Just the repayment portion of £125k is £416 a month, without interest. That's your rent, minus tax, so you need to find the interest portion every month, plus maintenance, agents fees, plus you'll have to pay the entire mortgage when you have void periods.

If you want to pay more in mortgage repayments in the anticipation of inflation, then why not buy a bigger house for the family and invest it in your own home, tax and relatively hassle free?

MNM2903

Doozergirl wrote: »

But you will have a larger mortgage on your new house too because you own this one.

Just looking at the current mortgage payment and thinking it's making a profit when the rent is more isn't the case, you are borrowing elsewhere to fund the full value of the retained property.

You have to compare what your mortgage would be in a new house without retaining the existing house and then do the maths on what extra you have to find/give to HMRC as a result.

Just the repayment portion of £125k is £416 a month, without interest. That's your rent, minus tax, so you need to find the interest portion every month, plus maintenance, agents fees, plus you'll have to pay the entire mortgage when you have void periods.

If you want to pay more in mortgage repayments in the anticipation of inflation, then why not buy a bigger house for the family and invest it in your own home, tax and relatively hassle free?

Good advice, this is why I come here first though as we've no idea what our best options are. If we could afford to keep both we would have loved that idea however initial plan and the one we are most likely to go with is to get the house we want and make overpayments on the mortgage. The other half has already planned in the extensions (she's good at that lol).

You don't happen to be looking for a 2 bed house in Newcastle do you? Lol

KatieDee

Where did you work out you could borrow "up to £260,000" with your current outgoings plus your mortgage?

I earn about £40k a year, my partner £24k. We don't have childcare costs, no car finance, very low outgoings and when I accidentally entered that I already owned a property on an AIP, the maximum anybody would lend us was £180,000.

It isn't just the financial side of letting a property, it's the stress of "what ifs". Given the very likely increase in your outgoings over the next few years, could you afford to cover both mortgages it your tenant stopped paying?

Personally I would sell. I know it's a pain in the bum and takes longer, but it just means less risk.

MNM2903

KatieDee wrote: »

Where did you work out you could borrow "up to £260,000" with your current outgoings plus your mortgage?

I earn about £40k a year, my partner £24k. We don't have childcare costs, no car finance, very low outgoings and when I accidentally entered that I already owned a property on an AIP, the maximum anybody would lend us was £180,000.

It isn't just the financial side of letting a property, it's the stress of "what ifs". Given the very likely increase in your outgoings over the next few years, could you afford to cover both mortgages it your tenant stopped paying?

Personally I would sell. I know it's a pain in the bum and takes longer, but it just means less risk.

Well we got a DIP with Halifax 4 month ago for 196k over 31 years, then we have since had a pay increase, I got promoted and went from £24,320 to £30,320 and my gf went from 21k to 24k with her increment. The 260k is just from doing an online mortgage calculator with Lloyds I imagine it's not 100% accurate, I agree with what your saying though my head's telling me sell which we are trying to do but my heart wants both lol we won't do anything that's going to have us struggling for the next ten years I just wanted my thoughts and hers confirmed.

dimbo61

I think your mad.
Sit tight in your current home and overpay /save.
2020 is not that far away

melj16

I think if you had more equity in your home it would be more viable.

You can only borrow 75% of the value of your home on a buy to let mortgage. You don't have enough equity to raise money for a deposit. Also, the property won't be self financing in the eyes of the lender. The rent would need to be more than £475 if the mortgage was £420 pcm.