Rent out and rent new? Or sell and buy ...

JillyC8

My house is up for sale but can't find a decent property to buy in the new area in my affordability range, so I'm considering renting mine out instead and renting in the new area (as I'll be able to live in a better quality property in a nicer part of the new town this way). Also I'm unsure whether I may want to return to my original home in a few years' time so this seems the better option.

Estimate £1200-£1300 a month rent income from the home I own.
Estimate same cost to rent in new area.

I owe £57k on the house I own and pay £600 a month mortgage. My bank charges a one-off fee of £295 for consent to rent. 

I realise there will be agents fees (10%?) and property maintenance to consider; please could anyone advise if this would be a sensible route to go down or not? I'm not sure how much tax I would have to pay as well. I earn £38k a year.

Albermarle

You need to research the responsibilities of being a landlord and the potential pitfalls.
Even with an agent ( and some of them seem to do very little for their 10%) you are still ultimately responsible for making sure everything is OK, and if something goes wrong ( dodgy tenants not paying rent for example) it will cost you, not them .

MeteredOut

Become a landlord because you want to, not because (you think) it's easier option.

Now is probably the worst time to become a first time landlord in at least 30 years.

El_Torro

Agreed that becoming a landlord is not something to be taken on lightly. You need to go on with your eyes wide open, and understand the risks involved.

Having said that, if you are looking to move back in to your current property in a few years time (I'm not sure why you're considering this?) then selling it probably isn't worth it. Buying and selling is expensive, not something I would do a few years apart. 

Regarding the tax you will have to pay, you need to pay income tax on any profit made. There are various costs that can reduce your profit, for example letting agent fees and maintenance on the property. Mortgage payments don't reduce your profit, though you do get 20% tax relief on the interest paid on the mortgage.

mlz1413

The rent you will be paying out is not a expense you can claim.

So you will pay tax on the 1200-1300pm you receive.  Only expenses wholly for that property are claimable (Lots of HMRC webinars on this).

If you are going to be renting it maybe worth going on a few viewings and getting a sense of how letting agents treat prospective tenants.  That may help you decide who to rent your house through.

Being a landlord is not easy as the laws are moving to favour tenants so ask letting agents about how you get your house back in 5 years time.  See if they all give the same answer!

poseidon1

JillyC8 said:

My house is up for sale but can't find a decent property to buy in the new area in my affordability range, so I'm considering renting mine out instead and renting in the new area (as I'll be able to live in a better quality property in a nicer part of the new town this way). Also I'm unsure whether I may want to return to my original home in a few years' time so this seems the better option.

Estimate £1200-£1300 a month rent income from the home I own.
Estimate same cost to rent in new area.

I owe £57k on the house I own and pay £600 a month mortgage. My bank charges a one-off fee of £295 for consent to rent. 

I realise there will be agents fees (10%?) and property maintenance to consider; please could anyone advise if this would be a sensible route to go down or not? I'm not sure how much tax I would have to pay as well. I earn £38k a year.

Suggest you do some back of envelope calculation of your net rents after agents fees ( nearer 15% for full management plus vat), insurance , mortgage payments, void periods, and of course the good old tax man taking 20% of your net rents. What you are left with may fall far short of a decent contribution to the rent you must pay.

 Bear in mind if your mortgage is capital repayment, you do not get to offset the capital element against your tax computation, just the interest.

Also bear in mind if your net rents ( before mortgage interest) and salary increases, eventually pushes you into 40% income tax, you do not get 40% tax relief on mortgage interest paid. Your  mortgage interest tax relief is permanently fixed at 20%.

Incidentally if you have never completed an annual self assessment tax return, you had  better learn unless you are going to pay an accountant to do it for you.

Keep an eye on the coming budget, there were rumours of landlords becoming liable for NI on rents.

Finally, enrol for membership of the national landlords association ( NRLA ) and invest in a good landlords general guide book. Sounds like you are going to need it based on the questions you raised.

Whiterose23

This is all very negative and seems like endless pitfalls … it doesn’t sound like renting should be considered as an option for anyone. 

poseidon1

Whiterose23 said:

This is all very negative and seems like endless pitfalls … it doesn’t sound like I should consider this as an option :-(. 

Probably wise.

Being a landlord is a business and now quite a complex one. Not to be entered into lightly.

_Penny_Dreadful

JillyC8 said:

My house is up for sale but can't find a decent property to buy in the new area in my affordability range, so I'm considering renting mine out instead and renting in the new area (as I'll be able to live in a better quality property in a nicer part of the new town this way). Also I'm unsure whether I may want to return to my original home in a few years' time so this seems the better option.

Estimate £1200-£1300 a month rent income from the home I own.
Estimate same cost to rent in new area.

I owe £57k on the house I own and pay £600 a month mortgage. My bank charges a one-off fee of £295 for consent to rent. 

I realise there will be agents fees (10%?) and property maintenance to consider; please could anyone advise if this would be a sensible route to go down or not? I'm not sure how much tax I would have to pay as well. I earn £38k a year.

If you're moving to a nicer home, in a nicer part of the new town are you sure that your rent will be the same as the rent received for your current home?  Wouldn't the new home cost more to rent?

Only the interest portion of your mortgage payment is taking into account when submitting your tax return.  When using the interest to reduce the income tax on your rental income you can treat it as an expense but you do get a tax credit for the interest.  This is fine if you're a basic rate tax payer but not so great if you're a higher or additional rate tax payer.  If you're in Scotland you'll be a higher rate tax payer and if you're in rUK you should still be a basic rate tax payer, even with the rental income but it'll be close.

You'll find that the first two months rent are swallowed by various charges from the letting agent for setting up the let.  

Your legal responsibilities will depend on where in the UK the rental property is as housing is a devolved issue and the laws are different between Scotland, England, Wales and Northern Ireland.  If the rental property is in England it's worth noting that the Renter's Rights Bill received Royal Assent on Monday.

JillyC8

The new rented house would be in a different part of the country, 300 miles away, which is why the quality of house/area is different. It doesn't sound like this is a good solution, reading all the comments.

Albermarle

Whiterose23 said:

This is all very negative and seems like endless pitfalls … it doesn’t sound like renting should be considered as an option for anyone. 

That is not really the case, as it depends on the situation. Having more than one property dilutes some of the risk, and if you are handy at DIY/ a builder, that can save costs. Also having some experience as a landlord helps as well.
The warnings in the thread are mainly aimed at people planning to rent out a single property with no experience in the area.