Advice on letting out my flat and purchase of new property

83dons2

Hi I currently have about 50% equity in a £120k flat in Scotland. I am 46 and earn about £43k a year. I would like to upsize and purchase a house as the flat is too small for me. As the market isn't great and I bought the flat at a high value I don't fancy taking ages to sell it on the market with potentially losing a bit of value so I thought I would let it out. My mortgage provider Santander says they can set this up at a one off fee of £295 but that when I renegotiate my mortgage in 12 months I would need to have a letting type mortgage. They couldn't tell me how much more expensive this might be. Dos anyone have any experience as I need to budget now for what the costs might be in the future for the flat mortgage. Based on local rental prices I think I can get about 450-500 a month for my 1 bed flat which covers the existing mortgage of about 430 a month. Not sure how it works for private let or using a landlord etc.

I am also looking to buy and looking for any advice for buying a second property so I can work out my budget and what I can afford. Is there a rule of thumb you can apply to your after tax income as to how much monthly mortgage you should commit to. Being 46 I likely can't commit to a term of over 21 years. I would like to keep buying fees as low as possible. What sort of deals are out there for a mortgage that I should look into and any general advice? probably looking for a 3 bed house for definitely under 300k but likely over 150k (local prices for such).

Any advice on above scenario be useful including any pitfalls to look out for.

Edit: I meant to say I couldn't find a section on letting out your property with general advice (particularly for those in Scotland).

MovingForwards

Your rental income won't be sufficient for a buy to let mortgage, especially when you pay tax, do repairs, have an empty property etc. It's not viable.

As a Scottish landlord you need to register to be a landlord.

Have a look through the home buying, renting sub forum, especially the pinned posts, while they are for England and Wales it will give you an idea as to what you are up against.

Generally it's 4.5x your annual income (before deductions) what you can borrow. Less your commitments, debts and obviously the mortgage payment on your flat.

Because of keeping your flat you are liable for extra land and buildings tax.

Why don't you sell, take the equity and put that into your new home? Some lenders give you 3 months to sell your old place as part of the mortgage conditions for your new place.

MovingForwards

https://forums.moneysavingexpert.com/categories/house-buying-renting-selling

Is the section you need to read through.

gj373

It's really not worth it... You are going to be losing money renting it out.

heston2014

Are you looking to raise a deposit from equity to buy a second property? Are you taking out a second mortgage?
If you can afford two mortgages, you may be able to either obtain a Consent to Let from your existing lender which is only for a short term depending on lender, then find another lender that offer second home mortgages. It’s based on affordability, not rental. That’s if you’re not looking to release equity from existing mortgage i.e. you have at least 20% deposit for a second property.

Alternatively, speak to a Whole of Market mortgage broker about Let to Buy mortgages, whereby you remortgage your existing property to raise funds for a deposit, switch from residential mortgage to Let to Buy, then take out a new residential mortgage for the second property. Both rental and salary will be taken into account for affordability.

Get your property valued for both sale and rental, depending on rental income, this will give you an idea of how much you can remortgage to LTB, which is usually 75% Loan to Value. Then depending on the second property value, you could potentially have a good amount to put down as a deposit from the equity. LTB will also include paying off your existing balance, so I’d say, your property is valued £150k and you owe £75k, you can only borrow up to 75%, so effectively, around £50k equity. With LTB, you need to move out upon completion.

grumiofoundation

83dons2 said:

Hi I currently have about 50% equity in a £120k flat in Scotland. I am 46 and earn about £43k a year. I would like to upsize and purchase a house as the flat is too small for me. As the market isn't great and I bought the flat at a high value I don't fancy taking ages to sell it on the market with potentially losing a bit of value so I thought I would let it out. My mortgage provider Santander says they can set this up at a one off fee of £295 but that when I renegotiate my mortgage in 12 months I would need to have a letting type mortgage. They couldn't tell me how much more expensive this might be. Dos anyone have any experience as I need to budget now for what the costs might be in the future for the flat mortgage. Based on local rental prices I think I can get about 450-500 a month for my 1 bed flat which covers the existing mortgage of about 430 a month. Not sure how it works for private let or using a landlord etc.

I am also looking to buy and looking for any advice for buying a second property so I can work out my budget and what I can afford. Is there a rule of thumb you can apply to your after tax income as to how much monthly mortgage you should commit to. Being 46 I likely can't commit to a term of over 21 years. I would like to keep buying fees as low as possible. What sort of deals are out there for a mortgage that I should look into and any general advice? probably looking for a 3 bed house for definitely under 300k but likely over 150k (local prices for such).

Any advice on above scenario be useful including any pitfalls to look out for.

Edit: I meant to say I couldn't find a section on letting out your property with general advice (particularly for those in Scotland).

As said above the rental income is not enough to cover the mortgages when taxes are factored, let alone other costs such as agents fees, repairs etc. Therefore you will be making a loss each month even if rent is being paid each month (which you can’t guarantee). 

This will decrease your affordability in getting another mortgage. 

You will also have to pay an extra 4% in LBTT because you are buying a second home - or put another way 20% of the equity you have in current flat (Edit: assuming 300k property).

83dons2

This is what I found for LBTT so for 200k property your only looking at £1000 fee lets say. My current estimate is about 200 of the 500 back in profit after all expenses per month although first cou0ple of months there could be extra charges and with tenants changing extra costs can come up or repairs. Problem is to sell I would likely lose 20-30k value just now and it could take 6 months or so. Hence why Id rather keep the flat until possibly the market improves and then look to sell. I have money for a deposit on the new property of about 15%. Basically it looks as though letting will allow me to cover about half the existing mortgage on one while also paying the full mortgage on the new place. If I select one within an affordable range this would be manageable on my wages I think.

83dons2

Purchase price	LBTT rate
Up to £145,000	0%
Above £145,000 to £250,000	2%
Above £250,000 to £325,000	5%
Above £325,000 to £750,000	10%
Over £750,000	12%

MovingForwards

You need to look up the 2nd home prices, not the ones for people with only one property.

How are you estimating £200 'back' (assuming you think profit) on £500 rental coming in, when your current mortgage is about £430.

You are worrying about a 'loss' on selling it, but you will have a monthly loss by renting it out.

grumiofoundation

83dons2 said:

Purchase price	LBTT rate
Up to £145,000	0%
Above £145,000 to £250,000	2%
Above £250,000 to £325,000	5%
Above £325,000 to £750,000	10%
Over £750,000	12%

https://www.moneyadviceservice.org.uk/en/articles/land-and-buildings-transaction-tax-everything-you-need-to-know#land-and-buildings-transaction-tax-on-second-homes

"Buyers of additional residential properties, such as second homes and buy-to-let properties, will have to pay an extra 4% in Land and Buildings Transaction Tax (LBTT) on top of current rates for each band on properties costing more than £40,000."

grumiofoundation

83dons2 said:

This is what I found for LBTT so for 200k property your only looking at £1000 fee lets say. My current estimate is about 200 of the 500 back in profit (see below) after all expenses per month although first cou0ple of months there could be extra charges and with tenants changing extra costs can come up or repairs. Problem is to sell I would likely lose 20-30k value just now and it could take 6 months or so. Hence why Id rather keep the flat until possibly the market improves and then look to sell. I have money for a deposit on the new property of about 1115% when you factor in LBTT. Basically it looks as though letting will allow me to cover about half the existing mortgage on one while also paying the full mortgage on the new place how?. If I select one within an affordable range this would be manageable on my wages I think. 

Rent = £500. Mortgage = 430. If £200 of that interest can get tax back on that. 

Tax on £300 @80% = 240 + 200 = grand total of £10 profit. 

Think you need to run some numbers again...