Before I'm 40...

30s_Suffolk_Lass

Hi everyone

I hope everyone is well. 

I'm looking for some advice if anyone can help at all. I'm not sure if this is the right part of the forum so please direct me to the right place if not. 

I am in the process of letting my flat out and moving in to my partners place (which he rents), in order for us to save money and hopefully buy next year. 

My partner has two children so it's not possible to move in with me (my place is a one bed flat). We have organised the bills so we pay on percentage as he earns more than me. This way we can save alot of money between us. We was thinking about buying straight away but he is about to start a new job so wants to make sure his probation is complete and his job secure before we buy.

I currently have around £19k on a bank loan and my initial thought was this would also enable me to pay off alot of this, then any remainder (perhaps about £5k), I could take out of the profit that I should earn on my flat when I sell it. If I sold now the equity is standing at around £28k. 

However, in a dream world, I would buy with my partner as well as keep my flat as a rental for the long term which would provide more money when I'm older. When I have checked this all out there are some hurdles:
1. The stamp duty would rise horrifically, and would be around £10k instead of about £4k on a property price we are looking at, and I don't have that kind of cash spare

2. I think the loan to value would need to be 75% and currently I have about just over 80% / £12k more on my mortgage than what I need it to be. 

If I pay off the loan I'll probably have to sell the flat as I won't be able to save to bring the loan to value down or the extra stamp duty, but I'll be £385 a month better off. However, the flat would be great to keep for the future.  

I know people will probably say pay off my bank loan, because pay off debts first. 

What are people's thoughts, and has anyone ever had this situation? Has anyone been able to do it all?

Thanks!
Suffolk Lass 

RAS

You are burning a lot of boats here.

But do you have a clue about the legal challenges of being a landlord? Does your lease even permit rental? And does that flat meet the legal requirements for letting?

Given the costs of inspections and certificates, you'd be lucky to make 4% if you get a good tenant and you get all the legal documentation absolutely correct. You could lose a lot of money if it goes pear-shaped. 

Which country are you in, as Scotland, Wales and NI are different?

Personally, I might see if I could get temporary consent to let, on 6 months fixed term so I'd be able to return if the BF situation failed. And advise the prospective tenant it was my home. Then sell once we'd lived together a while.

30s_Suffolk_Lass

RAS said:

You are burning a lot of boats here.

But do you have a clue about the legal challenges of being a landlord? Does your lease even permit rental? And does that flat meet the legal requirements for letting?

Given the costs of inspections and certificates, you'd be lucky to make 4% if you get a good tenant and you get all the legal documentation absolutely correct. You could lose a lot of money if it goes pear-shaped. 

Which country are you in, as Scotland, Wales and NI are different?

Personally, I might see if I could get temporary consent to let, on 6 months fixed term so I'd be able to return if the BF situation failed. And advise the prospective tenant it was my home. Then sell once we'd lived together a while.

Hi. Thanks for your reply. 

Sorry I think I left out some important info. 

I'm in England, and am doing consent to let and my bank are aware. I am legally allowed to let the flat out so all good on that front and yes, it's there for me to return to should the move not work out. It will be managed by an agent and I'm aware that I won't make anything out of it initially. So for the next year atleast, everything is covered. 

RAS

You need to take advice about getting it back to live in or sell, before you rent it out.

1. I believe that if a proper notice is served, it is easier to evict if you need to move back in. You need to research.

2. The EA will want a 12 month fixed contract, which they force the tenant to renew each year; that's how they make their extra fees from you. You want 6 months rolling over to periodic as that's gives you the flexibility to remove a bad tenant, sell or move back in.

3. Most EAs have no legal training and even if you use one, by law you are responsible for their mistakes. Join the NRLA, learn your responsibilities and make sure everything is watertight. Failure might mean no rent for 12 months and a trashed flat, or a fine 3 times the deposit and a lost sale. 

4. Once you really decide to buy with BF, sell. You don't need the extra hassle on top of a new place, revising relationship and step-kids, or the SDLT bill. And your mortgage provider may insist all debts are cleared.

For a start, read the LL, tenant and tenancy sticky on the Renting and selling forum.

30s_Suffolk_Lass

Thanks RAS. I will check over there, but rest assured I am not going in to the process blind about legal terms and responsibilities  

TheAble

Bearing in mind a potential lender (if you take out a mortgage with your bf) is going to be concerned about that 19k loan. They may make it a condition of the mortgage that you pay that off.

More generally, landlords don't really have a lot of friends in politics, and haven't for many years now. The tax burden is quite high, and for better or worse the rights feel basically skewed towards the tenant. Would you have wanted to be a landlord during COVID for example, not receiving any rent and being unable to evict?

It's something you need to be well-capitalised for, and that doesn't really describe your situation right now. My inclination would be the same as RAS and sell if/when you move in with bf. Definitely you want to be saving and investing for the future, but there are easier investments than buy to let. A good cash buffer and then some broad based index trackers in a stocks and shares ISA is as good a starting point as any.

30s_Suffolk_Lass

TheAble said:

Bearing in mind a potential lender (if you take out a mortgage with your bf) is going to be concerned about that 19k loan. They may make it a condition of the mortgage that you pay that off.

More generally, landlords don't really have a lot of friends in politics, and haven't for many years now. The tax burden is quite high, and for better or worse the rights feel basically skewed towards the tenant. Would you have wanted to be a landlord during COVID for example, not receiving any rent and being unable to evict?

It's something you need to be well-capitalised for, and that doesn't really describe your situation right now. My inclination would be the same as RAS and sell if/when you move in with bf. Definitely you want to be saving and investing for the future, but there are easier investments than buy to let. A good cash buffer and then some broad based index trackers in a stocks and shares ISA is as good a starting point as any.

Thank you. Stocks and Shares is definitely something that I want to look in to in the future. I know paying off my debt would make a very big cloud lift from my shoulders aswell. 

EssexHebridean

This might be better in some ways on the house buying board, but allowing that there is a debt factor at play here too, here is probably a sound place to start and there are some folk who cross post from that board too.

Renting our your flat would have lots of positives, but "having it there to move into should the move not work out" probably isn't really one you should consider IMO. You'll have a tenant in there, who will be entitled to stay for the term of the AST, and who could then become quite difficult about moving on subsequently. This might be because they simply didn't want to move, it might also be because they didn't have anywhere suitable to move to - either way the effect on you in the same.
To be a responsible landlord in my view you would need to have an emergency fund to hand that would enable you to instantly replace the boiler if needed, plus perhaps a couple of appliances going bang at the same time - and that is as a minimum. I don't get the feeling you would be in that position? If that scenario DID arise, how would you deal with it? 
As already pointed out, renting is becoming more and more problematic - and that's not going to get better any time soon I suspect.
You are correct about the SDLT situation - you would be liable for the higher rate if either of you had a second home at the time of your new purchase. 
Have you checked or do you know what the EPC rating is on the flat?

In terms of the existing loan - I take it the circumstances that meant you ended up with a loan that large have been addressed and won't be occurring again? It's already been pointed out that whatever of that loan was outstanding when you come to apply for a mortgage will be taken into account against what you can borrow - it doesn't matter how much you assure them that you will be clearing it off, it is highly unlikely that they will take your word for it I'm afraid, so it will impact on affordability. 

I really wish we could be giving you better news here - on the plus side it does sound as though you and your boyfriend have really begun to think through the process and that you're in a good place for setting up home together. 

30s_Suffolk_Lass

EssexHebridean said:

This might be better in some ways on the house buying board, but allowing that there is a debt factor at play here too, here is probably a sound place to start and there are some folk who cross post from that board too.

Renting our your flat would have lots of positives, but "having it there to move into should the move not work out" probably isn't really one you should consider IMO. You'll have a tenant in there, who will be entitled to stay for the term of the AST, and who could then become quite difficult about moving on subsequently. This might be because they simply didn't want to move, it might also be because they didn't have anywhere suitable to move to - either way the effect on you in the same.
To be a responsible landlord in my view you would need to have an emergency fund to hand that would enable you to instantly replace the boiler if needed, plus perhaps a couple of appliances going bang at the same time - and that is as a minimum. I don't get the feeling you would be in that position? If that scenario DID arise, how would you deal with it? 
As already pointed out, renting is becoming more and more problematic - and that's not going to get better any time soon I suspect.
You are correct about the SDLT situation - you would be liable for the higher rate if either of you had a second home at the time of your new purchase. 
Have you checked or do you know what the EPC rating is on the flat?

In terms of the existing loan - I take it the circumstances that meant you ended up with a loan that large have been addressed and won't be occurring again? It's already been pointed out that whatever of that loan was outstanding when you come to apply for a mortgage will be taken into account against what you can borrow - it doesn't matter how much you assure them that you will be clearing it off, it is highly unlikely that they will take your word for it I'm afraid, so it will impact on affordability. 

I really wish we could be giving you better news here - on the plus side it does sound as though you and your boyfriend have really begun to think through the process and that you're in a good place for setting up home together. 

Thank you for your reply.

Not great news no but I came here for some opinions so I was fully expecting some negatives.

The reason for the loan is multiple things but is definitely being addressed and I have no plans to have that debt again once it's gone. 

Should moving in to my bf's place not work out I have cleared with my parents and a friend that I can lodge there whilst the tenant completes their tenancy, and I will be doing a 12 month contract with a 6 month break clause. This would then go on to a rolling contract or I would take it back and put it on the market straight away. 

I totally get that renting is becoming more problematic, and that tenants have more rights, which is one of my concerns for the longer term and what decision I make in a years time.. I do have provisions for things to be replaced etc but yes this of course would be a concern. The building is relatively new so there are still some things under warranty a the EPC rating is fine.

SusieT

To add to the points about renting it, the tenants may not move out immediately and going through court could be costly, plus they may decide to simply stop paying rent once you have given notice and you would need to pay the mortgage as well as court fees, which although technically would be payable by the tenants and to a point could be deducted from the deposit, you may be well out of pocket at the end of it. You also have the question of what to do with your furniture, if you rent it furnished you could get it back with shall we say "well used" furnishings and not the nice things you left there, so you may need to consider the cost of storage in your calculations.  
If you do decide to let it, please make sure you have a clause in the contract saying that the owner may want to move back in, as that can be a big help if you need to ask the tenants if they would leave. 

30s_Suffolk_Lass

SusieT said:

To add to the points about renting it, the tenants may not move out immediately and going through court could be costly, plus they may decide to simply stop paying rent once you have given notice and you would need to pay the mortgage as well as court fees, which although technically would be payable by the tenants and to a point could be deducted from the deposit, you may be well out of pocket at the end of it. You also have the question of what to do with your furniture, if you rent it furnished you could get it back with shall we say "well used" furnishings and not the nice things you left there, so you may need to consider the cost of storage in your calculations.  
If you do decide to let it, please make sure you have a clause in the contract saying that the owner may want to move back in, as that can be a big help if you need to ask the tenants if they would leave. 

Thank you. 

The furniture is coming with me, which the agent also advised. 

Whilst I am at bf's I am able to pay the mortgage if they stop paying, but obviously this wouldn't be ideal. In the longer term this is something I would need to consider more. The agent also have an insurance included whereby the rent would be covered for 15 months. 

I will check re the extra clause also.