Renting Out Current Home & Buying Second House

Crashy_Time

Unless there is a lease for two tenants the lodger who is about to become a tenant might decide they don`t like the idea of "spare bedroom capacity" in their home? I think you need to tread carefully on this one.

[Deleted User]

Luke_B said:

Hi @Crashy_Time, you're largely right. My lodger would be covering the costs of keeping my first home (by becoming a tenant) which would enable  me to move closer to my family, and have spare bedroom capacity across the two properties for a couple of my immediate relatives who are currently facing hardship.

I'm mostly seeking technical advice, such as that recommend by @Lover_of_Lycra to look in to Let to Buy - which I hadn't thought of, and I've since emailed a few brokers for guidance.

Thank you.

If you want to let out individual rooms you could find yourself straying into HMO territory and usually LTB mortgages prevent you from renting to immediate family.  In terms of affordability the rent will need to be at least 125% of the LTB mortgage payment.  A few things you might want to discuss with your broker.

Comms69

Why keep the current property?

steampowered

There are a few points you may not have considered:

- Could you get a consent-to-let on your existing mortgage rather than remortgaging?
- Most BTL lenders will require the rent to cover 125% of the BTL mortgage repayments. Would you achieve this for your old property given that you are taking out a 75% mortgage (usually the highest you can go with an LTV), and leaving bedrooms spare?
- You'll be paying higher rate stamp duty on the new £120k property. This will set you back £3,600.
- You might be better off with a specialist mortgage broker who will know which lenders might be willing to contemplate this, rather than a Lloyds TSB representative who can only offer Lloyds TSB products.

The size of these mortgages suggests to me that you are not in a position to afford having spare bedrooms for occasional family visits. I don't think it is wise to be taking out both a 75% BTL mortgage on one property and a 80% mortgage on another - you'll be exposed if your income drops or if interest rates rise. You are likely to be much better off putting your excess savings into a stocks & shares ISA.

Crashy_Time

steampowered said:

There are a few points you may not have considered:

- Could you get a consent-to-let on your existing mortgage rather than remortgaging?
- Most BTL lenders will require the rent to cover 125% of the BTL mortgage repayments. Would you achieve this for your old property given that you are taking out a 75% mortgage (usually the highest you can go with an LTV), and leaving bedrooms spare?
- You'll be paying higher rate stamp duty on the new £120k property. This will set you back £3,600.
- You might be better off with a specialist mortgage broker who will know which lenders might be willing to contemplate this, rather than a Lloyds TSB representative who can only offer Lloyds TSB products.

The size of these mortgages suggests to me that you are not in a position to afford having spare bedrooms for occasional family visits. I don't think it is wise to be taking out both a 75% BTL mortgage on one property and a 80% mortgage on another - you'll be exposed if your income drops or if interest rates rise. You are likely to be much better off putting your excess savings into a stocks & shares ISA.

Good advice, but these funds have had some scary drops recently as well.

Luke_B

Thanks @steampowered, I appreciate what you're saying about exposure. I would be highly susceptible to the property market, and at risk if my salary didn't cover both repayments.

Hi @Comms69, it would be mostly to allow my lodger to continue living in the same house whilst also creating a spare room (via. the new house) to help a close relative.

Definitely more thought required though, I'm realising. Thanks for the opinions everyone.

AdrianC

Crashy_Time said:

steampowered said:

You are likely to be much better off putting your excess savings into a stocks & shares ISA.

Good advice, but these funds have had some scary drops recently as well.

Good time to buy, then...

steampowered

Crashy_Time said:

Good advice, but these funds have had some scary drops recently as well.

While that is true, stocks & shares ISA are not (usually) investments that are leveraged with debt. With stocks & shares you can't find yourself in a situation where you are left losing money each month to pay for the mortgage, tax, maintenance, letting agent fees and so on. The average long term return generated by the major stock markets has historically been about 6-8% per year so people don't need to take on a load of debt to boost their returns.

That said, as the Op says that their salary would be enough to cover both mortgages, their plan may be fine (albeit the Op would need to consider whether it is financially the best option, and whether the financial opportunity cost of that is off-set by having a spare room). 

Crashy_Time

steampowered said:

Crashy_Time said:

Good advice, but these funds have had some scary drops recently as well.

While that is true, stocks & shares ISA are not (usually) investments that are leveraged with debt. With stocks & shares you can't find yourself in a situation where you are left losing money each month to pay for the mortgage, tax, maintenance, letting agent fees and so on. The average long term return generated by the major stock markets has historically been about 6-8% per year so people don't need to take on a load of debt to boost their returns.

That said, as the Op says that their salary would be enough to cover both mortgages, their plan may be fine (albeit the Op would need to consider whether it is financially the best option, and whether the financial opportunity cost of that is off-set by having a spare room). 

I was being (slightly) ironic.

Crashy_Time

AdrianC said:

Crashy_Time said:

steampowered said:

You are likely to be much better off putting your excess savings into a stocks & shares ISA.

Good advice, but these funds have had some scary drops recently as well.

Good time to buy, then...

Buy funds you mean?