First time landlord with complications, help needed!

Mikeeee_2

Hello all

I need a bit of help and guidance as I'm about to become a first time landlord. But we'll be letting our main residence for an unspecified amount of time. I'll list the main facts:

1. My wife and I bought our home in 2014 with a Help to Buy (England) equity loan. We bought for £310,000 and have had a repayment mortgage since day 1. The HTB loan is 20% equity.
2. My wife has accepted a job that comes with free accommodation. The accommodation is a compulsory part of the role.
3. We would like to rent out our house whilst we live in the free accommodation. We have spoken to Virgin Money who do not have an issue with us letting the property as this is a compulsory part of the job. As it is specified as such in the employment contract, VM are fine with it. I have also spoken to HTB and they do not care, as long as the mortgage provider is happy.
4. Our current mortgage fixed interest period ends in March 2026. Outstanding amount on the mortgage is £139,112. Early Repayment Charge is £2,086. Current mortgage payment is £1,153 per month. Current HTB loan repayment is £131 pm.
5. We may love the new place to live, we may hate it. We would live there for at least a year but in all probability, it will be longer.
6. We invited estate agents to view our house to gauge interest and likely monthly rental income. All have told us that they wouldn't even need to advertise as they are inundated with enquiries. It's likely we would receive £1,800-1,850 pcm.
7. We are in the very fortunate position that with the free accommodation, we could cover any void periods without any financial issue.

I am weighing up the situation and wondering what the best thing to do is financially. Do we stick to the repayment mortgage until the fixed term ends or should we swap to interest only? If we swap to interest only, do we pay something down the mortgage or save to pay off chunks of HTB?

I'm aware of the income tax situation and know how to proportionately allocate the house between the both of us to be tax efficient. My question really is around what to do with the mortgage side of things.

Any help or guidance gratefully received.

sgthammer

It sounds like all the numbers are in your favour. Why would you EVER switch to interest only?

Mikeeee_2

sgthammer said:

It sounds like all the numbers are in your favour. Why would you EVER switch to interest only?

My instincts are to go ultra cautious and stick with repayment, essentially letting someone else pay our mortgage.

But one possibility I think about are the investment returns I can get with reasonably secure corporate bonds hovering around the 6% mark. That would outstrip the mortgage interest rate (which will likely get lower when I remortgage), but would add a little more risk to the equation. I'm relatively comfortable with that risk given the situation though. It could reduce the time it takes to pay off the mortgage overall.

silvercar

sgthammer said:

It sounds like all the numbers are in your favour. Why would you EVER switch to interest only?

The tax situation on a BTL means that only the interest is considering an expense of the letting, so most BTL mortgages are interest only for this reason.

theartfullodger

Which country (eg NI, Wales) ?? The law varies.

There are more than 10 taxes a landlord may pay.  In particular CGT - ensure you have documented estimates for MARKET value of the place before you move out.  You could guess as to what CGT you would pay when selling or transferring in future but we (me, you, everyone else) don't now what the CGT rates and rules will be in future when you sell.  The law keeps changing.

Buying and reading this (or similar) will save you more time & money than it takes to buy & read.
https://www.amazon.co.uk/How-Save-Property-Tax-2024/dp/1911020994

Most years (been in the game for 24 years) I make money from BTL - but not always!!  You need £££ for a rainy daay.

And humbly suggest you get educated in how to be a landlord & landlord/tenant law (a bleedin' minefield).  Cheaper than the alternative (ignorance, no offence.. ) e.g. (England..)
https://www.nrla.org.uk/training-academy/core-courses/landlords-fundamentals

In my experience giving your 'phone number to neighbours is a very cheap insurance policy . 

Check up on landlord insurance etc etc etc

Remember that to be a letting agent in England required no qualifications, no training, no criminal records check. Th whole office could be staffed by ex-cons from Brixton on early release from fraud & GBH sentences...  It's the landlord rather than agent that is ultimately responsible for everything.

Hoenir

Help To Buy do care.............

You are not allowed to sublet your home unless your personal circumstances make it difficult to live there.

When you may be allowed to sublet your entire home

When you sublet your entire home, you are letting it all to someone else and you do not live in it.

You’ll only be allowed to sublet your home in specific personal circumstances.

If you need to move temporarily

A temporary move must be due to:

• ill health
• a need to care for a family member
• a change of work location which results in an unreasonable commute from your home

If you’re struggling financially

Subletting may help if you need to move temporarily because you’re struggling due to things like:

• losing your job
• a drop in your household income
• a change of circumstances that leaves you unable to afford your mortgage payments

If your property is affected by unsafe cladding

If your property is affected by unsafe cladding, subletting may help you:

• if you need to move temporarily
• if you’re struggling financially due to additional costs

What you need to send

You’ll need to send us evidence, which should be:

• a letter from your mortgage lender confirming that they will:
  • allow you to sublet your entire home
  • not change the repayment mortgage to a buy to let mortgage
• a letter from your building or contents insurer saying that they will allow you to sublet your home
• any other information to support your application, we may ask for

If your property is affected by unsafe cladding, you will also need to send one of the following:

• an EWS1 form with a rating of A3 or B2, or evidence this form is not available from your freeholder or management company
• evidence supplied by your freeholder or management company that your property is affected by unsafe cladding

You’ll also have to pay a £50 administration fee.

You’ll also need to send a covering letter explaining why you want to sublet.

If you get permission, it will be valid for 12 months, so you’ll need to tell us what your plans are after that, for example, moving back into your home or asking permission to sublet again.

Having a lodger

You can have one lodger without asking for permission, as long as you, the homeowner:

• live in your home at the same time as the lodger
• do not give the lodger a formal lease or tenancy which would give them an interest in your property

Changing to a buy to let mortgage

You cannot change your repayment mortgage to a buy to let mortgage until you’ve repaid your equity loan in full.

Herzlos

How much do you still owe on the HTB loan? Is it something you could pay off or refinance?

Mikeeee_2

Hoenir said:

Help To Buy do care.............

You are not allowed to sublet your home unless your personal circumstances make it difficult to live there.

When you may be allowed to sublet your entire home

When you sublet your entire home, you are letting it all to someone else and you do not live in it.

You’ll only be allowed to sublet your home in specific personal circumstances.

If you need to move temporarily

A temporary move must be due to:

• ill health
• a need to care for a family member
• a change of work location which results in an unreasonable commute from your home

If you’re struggling financially

Subletting may help if you need to move temporarily because you’re struggling due to things like:

• losing your job
• a drop in your household income
• a change of circumstances that leaves you unable to afford your mortgage payments

If your property is affected by unsafe cladding

If your property is affected by unsafe cladding, subletting may help you:

• if you need to move temporarily
• if you’re struggling financially due to additional costs

What you need to send

You’ll need to send us evidence, which should be:

• a letter from your mortgage lender confirming that they will:
  • allow you to sublet your entire home
  • not change the repayment mortgage to a buy to let mortgage
• a letter from your building or contents insurer saying that they will allow you to sublet your home
• any other information to support your application, we may ask for

If your property is affected by unsafe cladding, you will also need to send one of the following:

• an EWS1 form with a rating of A3 or B2, or evidence this form is not available from your freeholder or management company
• evidence supplied by your freeholder or management company that your property is affected by unsafe cladding

You’ll also have to pay a £50 administration fee.

You’ll also need to send a covering letter explaining why you want to sublet.

If you get permission, it will be valid for 12 months, so you’ll need to tell us what your plans are after that, for example, moving back into your home or asking permission to sublet again.

Having a lodger

You can have one lodger without asking for permission, as long as you, the homeowner:

• live in your home at the same time as the lodger
• do not give the lodger a formal lease or tenancy which would give them an interest in your property

Changing to a buy to let mortgage

You cannot change your repayment mortgage to a buy to let mortgage until you’ve repaid your equity loan in full.

This is not particularly helpful but thanks for your efforts.

Mikeeee_2

theartfullodger said:

Which country (eg NI, Wales) ?? The law varies.

There are more than 10 taxes a landlord may pay.  In particular CGT - ensure you have documented estimates for MARKET value of the place before you move out.  You could guess as to what CGT you would pay when selling or transferring in future but we (me, you, everyone else) don't now what the CGT rates and rules will be in future when you sell.  The law keeps changing.

Buying and reading this (or similar) will save you more time & money than it takes to buy & read.
https://www.amazon.co.uk/How-Save-Property-Tax-2024/dp/1911020994

Most years (been in the game for 24 years) I make money from BTL - but not always!!  You need £££ for a rainy daay.

And humbly suggest you get educated in how to be a landlord & landlord/tenant law (a bleedin' minefield).  Cheaper than the alternative (ignorance, no offence.. ) e.g. (England..)
https://www.nrla.org.uk/training-academy/core-courses/landlords-fundamentals

In my experience giving your 'phone number to neighbours is a very cheap insurance policy . 

Check up on landlord insurance etc etc etc

Remember that to be a letting agent in England required no qualifications, no training, no criminal records check. Th whole office could be staffed by ex-cons from Brixton on early release from fraud & GBH sentences...  It's the landlord rather than agent that is ultimately responsible for everything.

Thanks. This is helpful. The property is in England.

The CGT thing is covered, I'm OK with that part. The estate agent we are likely to choose is quite big and well known, so I'm hoping that will be ok! We're friendly with several of our neighbours too as we've been here for 11 years so that helps.

I'll order the book and take a look at the link. Very useful 👍

ReadySteadyPop

Mikeeee_2 said:

sgthammer said:

It sounds like all the numbers are in your favour. Why would you EVER switch to interest only?

My instincts are to go ultra cautious and stick with repayment, essentially letting someone else pay our mortgage.

But one possibility I think about are the investment returns I can get with reasonably secure corporate bonds hovering around the 6% mark. That would outstrip the mortgage interest rate (which will likely get lower when I remortgage), but would add a little more risk to the equation. I'm relatively comfortable with that risk given the situation though. It could reduce the time it takes to pay off the mortgage overall.

I wouldn`t bet on that in this environment, and if you search the threads on here getting a bad or unlucky tenant could mean they are living in your house for free and you are paying the mortgage while you get them out. Do you have a link to the corporate bonds you are looking at?

Mikeeee_2

ReadySteadyPop said:

Mikeeee_2 said:

sgthammer said:

It sounds like all the numbers are in your favour. Why would you EVER switch to interest only?

My instincts are to go ultra cautious and stick with repayment, essentially letting someone else pay our mortgage.

But one possibility I think about are the investment returns I can get with reasonably secure corporate bonds hovering around the 6% mark. That would outstrip the mortgage interest rate (which will likely get lower when I remortgage), but would add a little more risk to the equation. I'm relatively comfortable with that risk given the situation though. It could reduce the time it takes to pay off the mortgage overall.

I wouldn`t bet on that in this environment, and if you search the threads on here getting a bad or unlucky tenant could mean they are living in your house for free and you are paying the mortgage while you get them out. Do you have a link to the corporate bonds you are looking at?

My current mortgage is over 5% as we remortgaged fairly peak interest rates.

I use Sharescope to look at bonds. It's a great tool if interested.