Buying a second house when you live mortgage free

DoggyMama

We have given up trying to buy and sell a house simultaneously. We are lucky enough to live mortgage free. We have sold 3 times in 3 years now, but can’t find anywhere to buy. We were originally going to use some savings and the proceeds of a sale, added to the mortgage, to climb the property ladder. But now we’re just thinking of keeping the current house, and buying another, less expensive one, using the savings as a deposit. I’m grateful to be able to afford this, but I’m disabled, with additionally fragile mental health, and being a landlord isn’t on my list of ambitions. The simultaneous sales and purchase process, with nowhere to move to, is very hard on my health, and as a result my family’s too.

So my questions are
1.) If I rent out an unmortgaged property and use the proceeds to cover the cost of the mortgage of a second property, will it be classed as “income” and I’ll have to pay tax on it? It’s not a business. Just a means to move somewhere better suited to my needs without entering the sales market. I’m currently below the income tax threshold. But not by a lot.
2.) What things should I budget for if I just leave it empty, or for us to use from time to keep the insurance valid? I could think of Council Tax, Water rates, basic gas and electricity standing charges. Don’t need a phone line. Are there any other penalties in addition to the increased SDLT for owning 2 homes?

I’d be very grateful for any ideas. We have come across a house that would suit us. For the moment, we’re just using it as a possible scenario, but I’d like to explore our options a bit further, and you guys are very knowledgeable.

Thank you in advance. 😊

[Deleted User]

DoggyMama wrote: »

We have given up trying to buy and sell a house simultaneously. We are lucky enough to live mortgage free. We have sold 3 times in 3 years now, but can’t find anywhere to buy. We were originally going to use some savings and the proceeds of a sale, added to the mortgage, to climb the property ladder. But now we’re just thinking of keeping the current house, and buying another, less expensive one, using the savings as a deposit. I’m grateful to be able to afford this, but I’m disabled, with additionally fragile mental health, and being a landlord isn’t on my list of ambitions. The simultaneous sales and purchase process, with nowhere to move to, is very hard on my health, and as a result my family’s too.

So my questions are
1.) If I rent out an unmortgaged property and use the proceeds to cover the cost of the mortgage of a second property, will it be classed as “income” and I’ll have to pay tax on it? It’s not a business. Just a means to move somewhere better suited to my needs without entering the sales market. I’m currently below the income tax threshold. But not by a lot.
2.) What things should I budget for if I just leave it empty, or for us to use from time to keep the insurance valid? I could think of Council Tax, Water rates, basic gas and electricity standing charges. Don’t need a phone line. Are there any other penalties in addition to the increased SDLT for owning 2 homes?

I’d be very grateful for any ideas. We have come across a house that would suit us. For the moment, we’re just using it as a possible scenario, but I’d like to explore our options a bit further, and you guys are very knowledgeable.

Thank you in advance. 😊

1) Yes, rental income will be subject to income tax regardless of what you intend to spend the money on.

2) Insuring an unoccupied property is expensive. You will also need to leave the heating on low so during cold spells will have more than just standing charges to pay. It's likely that after a period of being left unoccupied the council tax will double, check with your local council.

G_M

Have to ask: if ypu've sold 3 times, where have you been living? And did you own all 3 properties simultaneously and then sell them, or did you sell, buy, sell, buy, sell, buy?

Thrugelmir

DoggyMama wrote: »

will it be classed as “income” and I’ll have to pay tax on it? It’s not a business.

Letting property will generate taxable income. Describing it as not a business when you will be receiving rent simply doesn't wash.

AdrianC

DoggyMama wrote: »

So my questions are
1.) If I rent out a[STRIKE]n unmortgaged[/STRIKE] property [STRIKE]and use the proceeds to cover the cost of the mortgage of a second property[/STRIKE], will it be classed as “income” and I’ll have to pay tax on it?

Yes, of course.

It’s not a business.

YES, IT IS.

If you want to break the chain, sell and rent, then find somewhere to buy.

DoggyMama

We have sold the same house 3 times, with no difficulty. It’s trying to buy anything else that is the problem. If we try to purchase without selling the house, we can’t get a bid accepted. If we agree a sale on our house, and then start looking for a house, we can’t find one to buy. We have tried multiple times but what is out there is appalling. The good stuff gets snapped up as soon as it comes on the market, and comes up once or twice a year. The rest just drifts until it hits a better price range. But it’s too late for us. We can’t buy other people’s dross just because we sold our house. So we’re at an impasse with the housing market.

DoggyMama

It makes no sense to sell a house you have paid off, to go and pay someone’s else’s mortgage in a rental, while the value of the £s you have then parked in the bank sit there and go down. No one in their right mind would trade a bricks and mortar asset for a rental. Moreover, I would still be unable to make the adjustments needed to meet my additional needs. Hence the quandary.

Thanks for your answers. I think I need an accountant.

00ec25

DoggyMama wrote: »

We have sold the same house 3 times, with no difficulty. So we’re at an impasse with the housing market.

so you have never actually sold a property in your life

you have had 3 offers which by the sounds of it you have then left those potential buyers high and dry by pulling out of the sale yourself.

your solution is as suggested above, sell, then rent, then you have all the time in the world to find a place to buy.

if your income is below the income tax threshold and your savings are only sufficient for a deposit, not an outright purchase, have you confirmed how much mortgage you will actually be able to get?

being a landlord whilst your finances are as tight as the above para implies they would be is a recipe for disaster if you get a bad tenant. i appreciate you do not have a mortgage to pay on the property, but if you get a void you will have to pay the council tax. However, the poster above who says CT will double is incorrect if you declare the property to be your second home and leave it furnished. Double tax is an empty property, not just an unoccupied one.

AdrianC

How is an accountant going to help, if you simply can't find anywhere you want to buy?

If you break the chain, then when you do find somewhere, you're instantly proceedable without having to wait to find a buyer and risk losing the purchase.

Don't think of living in a rented property as some kind of "lost money" - you're simply paying for accommodation which is much more flexible than owning. Meanwhile, your equity is working for you in other investments.

Sure, you can overlap purchase and sale, if you can fund it - good luck, with no income - but you're paying the +3% SDLT, and you're paying mortgage interest you don't need to.

DoggyMama

Thank you for your advice. I think some here are jumping to conclusions. Although I suffer disability and my mental health is frail, I’m perfectly intellectually capable. Just very tired and jaded from the housing market. I think though, that my original question was naive. In fact we have been very guilty of naivety in this market. Overpricing, greed, and the impact of HTB on house prices has taken us by surprise.

I have sold other homes before, thank you, but they are not relevant to this case. I have never known the housing market this bad. I sell when others can’t, because I’m a realist, and price slightly below the RICS valuation, (which costs £200 and saves you a world of disappointment as estate agents exploit your greed). Our house is beautiful, well-appointed, well located and well cared for. That combined with our price flexibility enables us price to attract buyers, and then to sell. That’s all.

You needn’t worry about my former buyers. One couldn’t muster funds, eventually. The other two promised faithfully to wait while we found somewhere to buy, fully aware of our circumstances and particular requirements, and then tried to force us out into rental. They exploited what they perceived as our vulnerability and desperation, to push us out of an undervalued home and into rental accommodation.

Perhaps I need an accountant because I don’t want to work this out myself. In the mean time I’m putting in a call to the council, and reading a book called “accidental landlord”.

Thank you for all your input.

Norman_Castle

You need a bridging loan secured on the property you own.
https://www.google.com/search?q=bridging+loan+mortgage+uk


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