remortgaging: going rental between current and future home / letting current home

erik85

We are looking into moving house due to limited space and needing to move to a more family friendly neighbourhood, however we don't know yet whether we will stay in the same city or not.

I am also conscious it could take us quite some time to finalise our decision, so I am thinking about alternative plans.

The house we own is mortgaged, the mortgage counts for 50-60% of the house value; also we have still 20y left on it, and the mortgage started with a 25y term.

To be noted, I am conscious that you can get mortgages at different terms, but in the following scenarios I am intending 25y as a standard mortgage term and 20y as having paid off 5y of mortgage.

My understanding of the calculations for remortgaging to a bigger, more expensive house is as follows (these are very simplified calculations of course, not taking into account any fee etc.):

Example:
House value: 200k

Current outstanding mortgage: 120k

Future house value: 300k

Deposit for future house: 40k

Top-up mortgage: 60k

After moving we therefore have a 20y mortgage with an outstanding of 120k and a 25y mortgage with an outstanding of 60k.

I hope my assumptions are correct.

Plan A:
What happens if we sell and don't buy straight away, and let's assume we go rental for one year.

I'd think we get in our pockets 80k from the house sale minus mortgage( 200k-120k).
And then a year later when we are ready to buy, do we have to start a brand new mortgage lasting 25y?

Plan B:

What happens if we move out and we go rental, but keep our current house and turn it into a let. Can we swap our current mortgage to a let mortgage, keeping a probably similar but not identical interest rate, what would happen to the mortgage term though? Would it still be 20y? Or being a brand new let mortgage will it default at 25y?

Then when a year later we are ready to buy, can we sell our rented house and swap our let mortgage, which hopefully (depending on the answer to the question above) will have a span of 20y, to a standard mortgage of 20y and a top-up mortgage of 25y?

I'd really appreciate your answers and inputs for other considerations we haven't made should we follow plan A or B.

Of course feel free to let us know if there is any additional plan C or D we haven't thought about!

K_S

@erik85 I'm not sure where this "25-year" term comes from. The term can be as long/short as you like subject to affordability, lender criteria and your ages. There is no hard and fast rule that it has to start at 25 years.

erik85

@K_S I am not sure to be honest, perhaps it is an idea which has been inculcated in my brain by our mortgage advisor when we took the mortgage out, I seem to remember that 25y was deemed a standard term.

Perhaps I should rephrase the question to:
Is there any disadvantage in closing a mortgage and reopening a brand new one a couple of years down the line, as opposed to keeping the mortgage going or turning it into a mortgage to let first and then into a standard mortgage?

runforlife

Be careful if let your home out as you may be making yourself liable to capital gains tax. I would seek the advice of a financial advisor who specialises in CGT.

runforlife

You can keep your mortgage without converting to a buy to let if you sign a declaration that you “intend to return” to the property. We have done just that over the last 5 years but have now sold it and never did return 🤔

erik85

runforlife said:

You can keep your mortgage without converting to a buy to let if you sign a declaration that you “intend to return” to the property. We have done just that over the last 5 years but have now sold it and never did return 🤔

Interesting point; I believe we did a similar things a couple of years back when we went travelling for 6 months, but I understood it was an option that was strictly time-limited, 5 years sounds pretty good actually!
May I ask who is your lender?

runforlife

Sorry, been away a while. It was Lloyds 

missile

"What happens if we move out and we go rental" then the tenant fails to pay the rent and trashes your property?