Using equity in house on another property

psamatt

Hi, we are in the process of looking to sell our house as there is a house we like that is for sale. Having spoken to a mortgage advisor this week, he said that we could rent out our property but then use some of the equity in on existing house on the new property, im confused how this works so wanted advice? 
For arguments sake, my house is worth £250k, i have £50k mortgage left on the property, therefore 200k equity, im looking to buy a £500k house therefore a difference of £300k difference (250k house difference, 50k remaining).
The mortgage advisor said i could have two mortgages, one on the £50k remaining then use the remaining money on the new property, or at least part of it, can someone explain to me how this works? 
I might have some of the above from what the mortgage advisor said incorrect, hence the confusion

psamatt

think i might have worked it out, so i think he said, we'd re-mortgage our existing property of the equity we have, so 200k, then we'd move the 50k over to the new property, minus the equity from our existing property and have a mortgage of £350k, does that sound about right?
Ive left stamp duty and other moving fees out of this to make it easier to understand 

Thrugelmir

If you retain your existing property. Then you are going to need to fund £550k of debt. Putting the mechanics aside. Is this affordable for you?  Taking net rental income in account (after costs, interest and tax).
Be second home stamp duty to pay as well. 
Letting likewise may be a challenge for the foreseeable future. 

greatcrested

Your current property will need a Buy To Let mortgage which will be more expensive.

Your new property purchase will attract 3% additional SDLT as a 2nd property.

Your income will need to be sufficient for both mortgages.

You'll need to comply with a multitude of laws to let the current property - make sure you understad them before you decide, not after.

You'll need to consider the risks associated with running a letting business, as well as the costs which include income tax.

You need to do some serius financial planning.

Research
Learn the legal obligations, & tenant's rights. See Shelter's website below. Even if using an agent, learn the basics of Landlord & Tenant law, deposit registration, inventory management, repairing obligations, notice & eviction processes. Understand the difference between Fixed Term and Periodic tenancies. Ultimately you are responsible, not the agent.

Do a detailed budget (spreadsheet). Include all costs. Base income on 10 months a year to allow for voids, & tenants who default: a) initial set-up b) routine annual c) tenant-change-over costs. Budget d) repairs & overheads - predictable and unpredictable (eg new boiler). Add agency fees, landlords insurance, tax etc. Estimate postage, phone, petrol, documentation etc. Have contingency fund for worst-case 'tenants from hell' where you have to pay a mortgage for 8 months without rent, then pay to repair damage. Read a good book.

Permissions
You'll need
* Consent To Let from your Mortgage Lender unless you have a Buy To Let mortgage (CTL/BTL).
* Consent from your Freeholder if you have a lease (ie a flat and some houses).
* Specialist landlords insurance. Normal domestic insurance is invalid if you let the property. Compare risks as well as premiums.
* in Wales, some English councils (& Scotland) you must be registered & maybe licenced (here).

Safety & the Law
Since 1/10/15, new tenants must receive the 'Prescribed Information':
* government leaflet "how to rent"
* EPC (min E rating)
* Gas Safety Certificate if there's gas
* Smoke detectors on each floor
* CO alarm if there's solid fuel heating.

* From 1/2/16 landlords must check tenants' immigration status.

* furniture - certified fire-resistant
* electrics & electrical appliances - safe.
* Security deposit - registered & 'Prescribed Information' provided within 30 days of receipt. Failure has serious consequences. Never rely 100% on an agent.
* HMOs - special rules: check local council.

Documentation
* A good tenancy agreement. Consider the OFT's unfair contract terms guidelines
* check-in inventory should be comprehensive. Use inventory clerk? Otherwise, deposit deductions will be hard to justify
* holding deposit - refundable?
* application & vetting forms. Authorisation for credit searches
* standing Order mandate for rent payment
* letters to utilities for account hand-over
* security deposit scheme application. It's the law
* tenant info folder: boiler/appliance instructions, alarm system; how to replace smoke/CO alarm batteries; location of stopcock/fusebox etc; rubbish arrangements, emergency contact no.s for repairs; colour/brand of emulsion to touch up paintwork; current utility suppliers (+ ask the T to let you know if they switch); local doctor etc

Management
Be cautious appointing a letting agent. The right agent is as important as the right tenant. Check their credentials & get recommendations/references. Check your contract with them. Can you get rid if they're no good? See link below.

Take tenant vetting seriously, either DIY or use an agent. Check ID, references, income, credit history, immigration status etc & take nothing for granted (reference the LL before the current one - he may be keen to move them on). Consider a guarantor for high risk tenants, or if you can't vet (overseas applicants, first-time renters etc). Remember a Guarantor Agreement must be Executed as a Deed/witnessed, & guarantor given the tenancy agreement in advance - many agents get this wrong.

Don't let your agent force you to renew Fixed Term contracts if a Periodic Tenancy will suit. Agents recommend new Fixed Terms as they charge fees from both sides, but a Periodic Tenancy arises automatically. See link below.

Consider carefully whether & when to increase rent. A long-term tenant is far better than a nominal rent increase. See link below.

Consider maintenance/repairs: Use your own handyman/contractor when needed, DIY, or leave it to your agent who will have contractors.... at a price.

Decide how often to inspect (be reasonable) and include in the tenancy agreement.

Tax
You're running a business, even if it's a short term arrangement or rental to family, so you have to declare rental income whether tax is payable or not. Research the Income Tax liability and allowances before you start. Note only the interest element of your mortgage repayments is tax-deductable (see below). Consider Capital Gains Tax. If going abroad, & you have no agent, read the Non Resident Landlord Scheme - see below.

Support and advice
Join a Landlord's Association and/or a web-based source (see below). Membership fees are tax deductible, & offer discounts on insurance, documents, vetting services, training and more. Some areas have local associations affiliated to one of the nationals. Check your local Council for accreditation scheme for private LLs.

Rent Guarantee Schemes
Some Housing Associations, councils, and private letting agencies offer schemes which guarantee your monthly rental income, removing the risk of costly voids between tenants. The advantage of these schemes is obviously the certainty of regular income to pay your mortgage etc. Against this you must weigh 1) the (significantly?) lower rent you will receive; 2) the removal of your freedom to select either the specific tenant or even the type of tenant; 3) the reality that the HA/agent etc will have little concern for the protection/condition of your property; 4) the reality that their priority will be to have a tenant (any tenant) in occupation. Additionally you should ensure that your landlords insurance/mortgage terms do not prohibit the type of tenant the HA/agent plans to install.

Additionally, be aware your contract will be a commercial tenancy, not an AST (Assured Shorthold Tenancy). This has significant legal ramifications (eg S21, S8, S13 Notices don't apply).

General Advice
Remember although it may have been your home, you will be handing over "exclusive occupancy" of the property, and tenants are entitled to view it as their home, without undue interference ("quiet enjoyment"). Make sure you understand the limit of your rights (ie access - a dodgy clause in your tenancy agreement does not grant you free access)

Be business-like but fair, most tenants respond in kind, looking after your property and keeping those expensive voids at bay.

And be careful letting to friends or family - will you be willing to evict if you have to? Are you concerned about losing their friendship or love?

greatcrested

If you are a new landlord, or taking over management from your letting agent, the links below support the guidance in the previous post (New landlords (1)). This includes links to the relevant leglislation and regulations, as well as to other websites providing guidance and information.

Books - Try your library. (Check publication date as laws change):
The Complete Guide to Residential Letting 2015 (also available here)

Successful Property Letting 2017: (How to Make Money in Buy-to-Let)

Landlordzone (Landlord information + forum)

Landlord Law (Property solicitor!!!8217;s website - clinic, blog, resources, advice etc) + Landlaw Law links (more links for landlords)

Shelter England (Tenants' rights) Shelter Scotland

Shelter (Repairs in private rented homes)

Gov advice (Renting out your home: government website)

HMRC (Property taxes eg Income Tax on rent (and allowable expenses to offset tax); Capital Gains Tax, etc)

HMRC (Non Resident [= overseas] Landlord Scheme)

Deposits (Payment, protection and return)

Deposits (Gov site: rules on deposit protection)

Prescribed Information (RLA links to various deposit schemes' documentation)

HSE (Gas Safety Certificate rules)

EPC (Energy Performance Certificate rules)

How to rent (mandatory government leaflet)

ESC (Electrical Safety Council - Rules)

The Smoke and Carbon Monoxide Alarm (England) Regulations 2015 (from 1/10/15)

Right to Rent (Mandatory checks on tenants' immigration status)

RLA (Residential Landlord!!!8217;s Association - mixed reviews)

NLA (National Landlord!!!8217;s Association)

Letting Agents (Tips for selecting, and tips for sacking them)

Letting agents (Landlordzone guide)

ARLA (Letting agents' professional body)

The AIIC (Association of Independant Inventory Clerks)

ParagonAdvance (Tenant referencing provider !!!8211; there are others. Use Google) Letsure

Landlord & Tenant Act 1985 (Repairing obligations; LL's address; and much more)

Landlord and Tenant Act 1987 (Address for Notices; etc)

Protection from Eviction Act 1977 (speaks for itself really. Also makes harrasment a criminal offence)

Housing Act 1988 (Definitions and rights of various tenancy catagories - note AST is most common; creates Statutory Periodic Tenancies)

Housing Act 2004 (Deposits; Houses of Multiple Occupation; etc)

Localism Act 2011 (section 184 - updates to deposit scheme rules)

Deregulation Act 2015 (amendments to deposit penalties & S21 service, smoke alarms, retaliatory eviction rules)

Statutory Instrument 2015 No. 1646 (Prescribed Information at start of tenancies from 1/10/15 - Deregulation Act)

Requirements for new tenancies since Oct 2015 (Stat Inst 1646 & Dereg Act)

Tenant Fees Act 2019 Abolition of most tenant fees from June 1st 2019 Gov Guidance Notes

Shelter information on 2019 restrictions on tenant fees.

Written demands (for rent etc: LL's actual address needed) Beitov Properties Ltd v Martin

Rent Increases (how and when can rent be changed)

HMOs (Licencing of Houses in Multiple Occupation in England: A guide for landlords and managers)

OFT356 (Unfair Terms in Tenancy Agreements)

Housing (Wales) Act 2014 (landlord registration & licencing)

This advice is not exhaustive. Whole books are devoted to the subject.

AdrianC

You have £250k house (residence), £200k equity, £50k debt.
You will end up with £250k house (let) + £500k house (residence), £200k equity, £550k debt.

How you split the £550k mortgage between the two properties is the question. You're going to need to retain at least 25% equity (£62.5k) in the let property, so max £187.5k mortgage. That frees £137.5k equity for your residential purchase, so £362.5k mortgage on that.

Don't forget the +3% SDLT - that'll add £15k to your purchase bill.

But...
1. Do you really understand what you're doing by starting a residential lettings business? All your obligations and the legal framework?
2. Have you actually done the sums to see if it's a viable, profitable business? How long will the cleared, post-tax profits take to even cover the SDLT hike, before you see a single penny of income?
3. Is this even the right property for the business?
4. Now...? I mean, really...? NOW? Have you caught any news in the last week or so?