I'm buying a house. Should I keep and let out my flat?

andy230uk

I'm planning on buying a house with my wife next year and would ideally like to keep the flat which I own (by myself), to let.

I know the government are making it more and more difficult. I like the idea of having a steady passive income indefinitely, plus the trump cards of a big asset in an increasingly popular city centre, but if it's not worth it, I'll sell. If it is worth it, we already have enough of a deposit for the next place (including additional stamp duty)

The flat is now worth £150k-£170k. I have an offset mortgage which is fully offset so I'm paying 0 on the mortagage (0% interest and mortgage repayments are gradually coming off the savings).

I have around £60k in that account which could obviously be withdrawn thereby meaning interest will be payable on the mortgage again.

The rental valuation is £800-£900 per month.

I've been researching this for months and just cannot work out if it's worth it or not. Rental income would immediately be put into reclaiming the extra stamp duty I'd have shelled out so it'll be a few years before I'm back to 0.

Firstly, once all new landlord tax implications have been phased in, can anybody advise as to how much I can expect to be left with per month? My salary is currently around £40k but I expect this to rise to £45k+ over the next few years. So obviously the tax implications of pushing me into a higher tax bracket come into play.

Thanks in advance

ReadingTim

Anyone can work out whether, on paper, it is "worth it". But only you can wok out whether it's worth it for you, as there is hassle, as well as cost associated with being a landlord, and some people figure the small additional profit simply doesn't make up for the large additional hassle.

Suggest you read up on all of the obligations associated with being a landlord and work out how much it'll cost you complying with them, plus the ongoing hassle of dealing with tenants, or paying someone to do it for you then see if that fits with your idea of a "passive" income....if you think you're going to be able to sit back and watch the money roll in, I think you're going to be sorely disappointed.

andy230uk

ReadingTim wrote: »

Anyone can work out whether, on paper, it is "worth it". But only you can wok out whether it's worth it for you, as there is hassle, as well as cost associated with being a landlord, and some people figure the small additional profit simply doesn't make up for the large additional hassle.

Suggest you read up on all of the obligations associated with being a landlord and work out how much it'll cost you complying with them, plus the ongoing hassle of dealing with tenants, or paying someone to do it for you then see if that fits with your idea of a "passive" income....if you think you're going to be able to sit back and watch the money roll in, I think you're going to be sorely disappointed.

Thanks. I appreciate that it's not just a case of sitting back and relaxing. As much as someone who hasn't done it before, can do. Perhaps passive income was the wrong term to use. I plan on using a letting agent to help with some of this. I've spoken to a few and looking at 10%-12%.

And yes, 'worth it' is completely subjective. I wouldn't do it for £100pm after tax but I would for £400pm after tax. Next stop, accountant.

MEM62

It is completely a personal choice and not one that you need to make on financial considerations alone.

I kept mine when my OH and I bought a house together 3 years ago. In my case it was mortgage free and I am happy to let it sit there. Also, I didn't want to burn my bridges with West London (we bought in Hampshire) as, if we ever wanted to move back we could not afford to buy there again.

In terms of the tax changes this only applies to the tax relief applicable to finance costs - basically, mortgage interest. Your other costs are still eligible for tax relief at your nominal rate. In my case the rental income put me well into the 40% tax bracket so I increased my pension contributions to the point where I now sit just below it.

Lastly, bear in mind that letting out a property is a business. You have to run it as a business and there is work involved. It is not just a case of sitting back and getting a cheque every month.

foxy-stoat

Naaaaa, sell it and let someone else buy it to live in, you don't need the stress of being a landlord and you can use the extra cash to lower your mortgage on your house.

pjread

If you're after passive income, a sensible share portfolio (or even easier/better, a big chunk in a few index funds) has never called me at 2am because a pipe has burst.

Different risks (and arguably lower expectations) but a lot lower hassle for cosmically similar likely returns - especially as you're not using mortgage finance to get leverage, and selling lets you recoup the 'extra' stamp duty immediately rather than relying on a 'few years' of the additional hassle to hit break even.


That'd be my thinking anyway.

Cakeguts

Don't do it unless you have no mortgage or a really really small one. You don't want to finish up with paying two mortgages while you want around 9 months for a court date to evict a non rent paying tenant who then trashes the place before they leave.

sheramber

If letting your flat you will need to advise the mortgage lender and will probably need to change to a BTL mortgage.

Remember you can only claim tax relief on the mortgage interest paid, not the capital repayment.

AnotherJoe

To answer your question "no" .
Its an expensive hassle with lowish return for the risk involved and the profits mostly dependent upon house price inflation.
When doing the maths dont forget to factor in the increased mortgage (due to going to BTL) and the increased mortgage on your residence due to smaller deposit than otherwise plus a bigger loan.

foxy-stoat

sheramber wrote: »

Remember you can only claim tax relief on the mortgage interest paid, not the capital repayment.

Not for much longer....

G_M

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