Rent current house or sell?

Rent current house or sell?

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lukefreeman

Original Poster:

1,492 posts

174 months

Monday 16th May 2016
quotequote all
What would you do in this scenario?

Here are some facts:

. We’ve purchased a bigger house with 15% saved deposit
. We currently live in a house with around 25% equity
. 4 months into a mortgage deal (Circa £800 to end early).
. We pay around £600 a month on current house mortgage (11 years left @ 1.39%). Could rent for £450pcm

So we’ve purchased a house, got a mortgage on the new house, (Thanks to a certain someone on here) based on keeping current house, which we can do (although it means selling my fun car and cashing in savings in the form of shares). Ultimately, even if we sold house today (It’s on the market) I don’t think it’d complete prior to us moving in the new house

The question is : Should we pursue in selling our house, or rent it out until our mortgage deal is finished (1 year 8 months) That way, we don’t have to pay to finish term early, 1.66 years more capital paid off (Ok, we’d have to top up rental to make the mortgage by £150, but YOLO).

Providing we complete in 3 years, we get our stamp duty back on 2nd property too, right?

Cons: We’d have to rent to tennats, who could be bad! If we couldn’t fill house, we could afford both mortgages for a period of time.

Eric Mc

121,789 posts

264 months

Monday 16th May 2016
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Do you currently already own two properties?

SMB

1,513 posts

265 months

Monday 16th May 2016
quotequote all
bear in mind you will also need potential approval of your current mortgage provider to let the house out as they own a chunk of it.
is the 450 income gross or net of management fees and tax? Also after 18 months Capital gains tax started to kick in , based on prorata rate vs the length of time you lived in it. for the short term you should be under the threshold but if you keep it, the prorata rate gets bigger.

battered

4,088 posts

146 months

Monday 16th May 2016
quotequote all
Looks like a sell to me. Cost to keep - £150pcm x 16 months remaining, assuming you let it 100%. So about £2k. Cost to get out - £800 and it's a clean break.

Keep your £1.2k and use that to chisel off the capital amount. Even at 1.6% a substantial amount of your £600 pm is interest only.

lukefreeman

Original Poster:

1,492 posts

174 months

Monday 16th May 2016
quotequote all
Eric Mc said:
Do you currently already own two properties?

No. Just ours, however the second house is where we plan to move into.

Surely, if we rented it out for 18 months, we get to pay off 450x18 of the mortgage to? £8100 - whatever amount for interest means a substantial amount off, no?

Eric Mc

121,789 posts

264 months

Monday 16th May 2016
quotequote all
As you hinted at, the second property will suffer the additional 3% Stamp Duty Land Tax (SDLT) surcharge when you initially buy it.

If you dispose of your original property within 36 months of buying the second property AND THE SECOND PROPERTY IS YOUR MAIN RESIDENCE for that entire period, then you should be able to get the 3% SDLT surcharge refunded to you.

I have not yet seen any explanation of the process you will need to go through to get the SDLT surcharge back.

battered

4,088 posts

146 months

Monday 16th May 2016
quotequote all
lukefreeman said:

No. Just ours, however the second house is where we plan to move into.

Surely, if we rented it out for 18 months, we get to pay off 450x18 of the mortgage to? £8100 - whatever amount for interest means a substantial amount off, no?
Probably less than the £1200 you save by selling, sorry. Bear in mind that any rent voids take away from your £450 pm, so does any damage, then you are trying to sell a house with a tenant. All this for (if you are lucky) a few hundred quid off your mortgage amount (which I doubt, see above).

Most of a mortgage is interest, certainly in the early stages. This improves over time for a repayent mortgage but it isn't in any way linear. For the first 10 years the rate at which you pay off the capital amount is pitiful. If you think about it a repayment mortgage is half gone after 12.5 years so the interest charges have halved. However your monthly amount is the same, so you will have more left over every month to chew down the capital amount than when you started.

If you want to do more precise sums, ask the lender how much of the payments at the moment are interest, and go from there. However if it were my money I'd cut and run. BtL works only when income exceeeds outgoings, and that's effectively what you are doing.

greygoose

8,227 posts

194 months

Monday 16th May 2016
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Unless you know someone trustworthy to rent it to then I would sell, as already said void periods, wear and tear, white goods needing replacement etc could all eat into your savings and the rent doesn't cover the mortgage anyway.

lukefreeman

Original Poster:

1,492 posts

174 months

Monday 16th May 2016
quotequote all
battered said:
lukefreeman said:

No. Just ours, however the second house is where we plan to move into.

Surely, if we rented it out for 18 months, we get to pay off 450x18 of the mortgage to? £8100 - whatever amount for interest means a substantial amount off, no?
Probably less than the £1200 you save by selling, sorry. Bear in mind that any rent voids take away from your £450 pm, so does any damage, then you are trying to sell a house with a tenant. All this for (if you are lucky) a few hundred quid off your mortgage amount (which I doubt, see above).

Most of a mortgage is interest, certainly in the early stages. This improves over time for a repayent mortgage but it isn't in any way linear. For the first 10 years the rate at which you pay off the capital amount is pitiful. If you think about it a repayment mortgage is half gone after 12.5 years so the interest charges have halved. However your monthly amount is the same, so you will have more left over every month to chew down the capital amount than when you started.

If you want to do more precise sums, ask the lender how much of the payments at the moment are interest, and go from there. However if it were my money I'd cut and run. BtL works only when income exceeeds outgoings, and that's effectively what you are doing.
Looking at my last mortgage statement, I paid £2600 over 4 months, and £700 was interest. Interest drops over time, so let's assume it'll decrease by around £20 every four months.

So

Month 1-4 - £2600 paid, £700 interest
Month 5-8 - £2600 paid, £680 interest
Month 9-12 - £2600 paid, £660 interest
Month 13-16 - £2600 paid, £640 interest
Month 17-20 - £2600 paid, £620 interest
Month 21-24 - £2600 paid, £600 interest

So in total over 2 years I've paid off 15600, Minus 3900 for interest = 11700 off capital?

Over them two years, me topping up the mortgage £150 a month means I'll have put in £3600, so basically my renter has dropped £8k off my capital repayment?

Or am I wrong somewhere?

SMB

1,513 posts

265 months

Tuesday 17th May 2016
quotequote all
lukefreeman said:
Looking at my last mortgage statement, I paid £2600 over 4 months, and £700 was interest. Interest drops over time, so let's assume it'll decrease by around £20 every four months.

So

Month 1-4 - £2600 paid, £700 interest
Month 5-8 - £2600 paid, £680 interest
Month 9-12 - £2600 paid, £660 interest
Month 13-16 - £2600 paid, £640 interest
Month 17-20 - £2600 paid, £620 interest
Month 21-24 - £2600 paid, £600 interest

So in total over 2 years I've paid off 15600, Minus 3900 for interest = 11700 off capital?

Over them two years, me topping up the mortgage £150 a month means I'll have put in £3600, so basically my renter has dropped £8k off my capital repayment?

Or am I wrong somewhere?
Where in your calculations are you allowing for the costs of renting a property out?

eg insurance, tax on income, redecorating costs before sale, safety certificates, costs to fix items that break during tenancy , management costs ( assuming you don't know how to set up a legal contract with your tenant) , vacant periods ( plus associated utility and council tax charges) etc etc You can do some of these things yourself, but it then becomes your time and effectively another job for you to do.

Ozzie Osmond

21,189 posts

245 months

Wednesday 18th May 2016
quotequote all
Ozzie's logic,

Assuming you already own one house, with or without a mortgage,

  • Would you borrow money to invest in the stock market?
  • If not, don't borrow money to buy/keep a BTL.

lukefreeman

Original Poster:

1,492 posts

174 months

Monday 23rd May 2016
quotequote all
SMB said:
lukefreeman said:
Looking at my last mortgage statement, I paid £2600 over 4 months, and £700 was interest. Interest drops over time, so let's assume it'll decrease by around £20 every four months.

So

Month 1-4 - £2600 paid, £700 interest
Month 5-8 - £2600 paid, £680 interest
Month 9-12 - £2600 paid, £660 interest
Month 13-16 - £2600 paid, £640 interest
Month 17-20 - £2600 paid, £620 interest
Month 21-24 - £2600 paid, £600 interest

So in total over 2 years I've paid off 15600, Minus 3900 for interest = 11700 off capital?

Over them two years, me topping up the mortgage £150 a month means I'll have put in £3600, so basically my renter has dropped £8k off my capital repayment?

Or am I wrong somewhere?
Where in your calculations are you allowing for the costs of renting a property out?

eg insurance, tax on income, redecorating costs before sale, safety certificates, costs to fix items that break during tenancy , management costs ( assuming you don't know how to set up a legal contract with your tenant) , vacant periods ( plus associated utility and council tax charges) etc etc You can do some of these things yourself, but it then becomes your time and effectively another job for you to do.
How much tax would I have to pay on the income, say it was £400 a month (so that's £5600 a year) Surely as it's under £10k, I pay nothing.

Not worried about redecorating, £150 for landlord insurance, safety certificates (What would I need exactly?)

At least if I rent it for a year or two, I can finish my mortgage term of 2 years, so no fees to terminate mortgage, and get some extra capital. In a worst case scenario, we can (comfortably) afford to pay the mortgage on this property, if it was vacant.

lukefreeman

Original Poster:

1,492 posts

174 months

Monday 23rd May 2016
quotequote all
Ozzie Osmond said:
Ozzie's logic,

Assuming you already own one house, with or without a mortgage,

  • Would you borrow money to invest in the stock market?
  • If not, don't borrow money to buy/keep a BTL.
I'm borrowing in the form of a mortgage, which has a £800 early repayment charge, if I dont' wait it out till Jan 2018.

It's 1.39%, pretty cheap.

battered

4,088 posts

146 months

Monday 23rd May 2016
quotequote all
lukefreeman said:
SMB said:
lukefreeman said:
Looking at my last mortgage statement, I paid £2600 over 4 months, and £700 was interest. Interest drops over time, so let's assume it'll decrease by around £20 every four months.

So

Month 1-4 - £2600 paid, £700 interest
Month 5-8 - £2600 paid, £680 interest
Month 9-12 - £2600 paid, £660 interest
Month 13-16 - £2600 paid, £640 interest
Month 17-20 - £2600 paid, £620 interest
Month 21-24 - £2600 paid, £600 interest

So in total over 2 years I've paid off 15600, Minus 3900 for interest = 11700 off capital?

Over them two years, me topping up the mortgage £150 a month means I'll have put in £3600, so basically my renter has dropped £8k off my capital repayment?

Or am I wrong somewhere?
Where in your calculations are you allowing for the costs of renting a property out?

eg insurance, tax on income, redecorating costs before sale, safety certificates, costs to fix items that break during tenancy , management costs ( assuming you don't know how to set up a legal contract with your tenant) , vacant periods ( plus associated utility and council tax charges) etc etc You can do some of these things yourself, but it then becomes your time and effectively another job for you to do.
How much tax would I have to pay on the income, say it was £400 a month (so that's £5600 a year) Surely as it's under £10k, I pay nothing.

Not worried about redecorating, £150 for landlord insurance, safety certificates (What would I need exactly?)

At least if I rent it for a year or two, I can finish my mortgage term of 2 years, so no fees to terminate mortgage, and get some extra capital. In a worst case scenario, we can (comfortably) afford to pay the mortgage on this property, if it was vacant.
If those numbers are right then it works out. That's seriously cheap borrowing. You pay tax at your top rate, I presume you have a job that eats your tax free allowance. You don't get 2 simply because you have 2 sources of income you know. However you only pay tax on profit, after loans and costs. You'll need landlord ins and a safety inspection on gas appliances.

nct001

733 posts

132 months

Tuesday 24th May 2016
quotequote all
why not ask lender to port the mortgage from your old house to your new house - no fees, no hassle, no need to pay mortgage advisor. Port just means transfer from one property to another. Done it a couple of times with my lender.

Do you realise you cannot (often) have two residential mortgages so your first property will have to have consent to let - this may trigger early repayment fees and will certainly have a fee.

It's more important that the house you have is a suitable buy to let rather than just thinking I bought it so it must be a great rental. Speak to at least three local letting agents - sadly most are 22 years old full of st but they won't all be.

Given the numbers you quote I'm guessing this is outside London and SE - look at historic price trends for your area, if they haven't risen 20 per cent in last 10 years it's probably not worth btl at this stage. Keep it simple port mortgage to new house with big deposit.


Ozzie Osmond

21,189 posts

245 months

Tuesday 24th May 2016
quotequote all
lukefreeman said:
It's 1.39%, pretty cheap.
It's also £600 a month for 18 months - which isn't cheap. I make it £10,800 which is a full £10,000 more than the early repayment charge of £800.

lukefreeman

Original Poster:

1,492 posts

174 months

Wednesday 25th May 2016
quotequote all
nct001 said:
why not ask lender to port the mortgage from your old house to your new house - no fees, no hassle, no need to pay mortgage advisor. Port just means transfer from one property to another. Done it a couple of times with my lender.

Do you realise you cannot (often) have two residential mortgages so your first property will have to have consent to let - this may trigger early repayment fees and will certainly have a fee.

It's more important that the house you have is a suitable buy to let rather than just thinking I bought it so it must be a great rental. Speak to at least three local letting agents - sadly most are 22 years old full of st but they won't all be.

Given the numbers you quote I'm guessing this is outside London and SE - look at historic price trends for your area, if they haven't risen 20 per cent in last 10 years it's probably not worth btl at this stage. Keep it simple port mortgage to new house with big deposit.
Not an option. We've purchased our house, and have to move in ASAP.....can't wait until this is sold. Besides, Sarnie's hooked us up.

I'm not looking at treating it as an income........If I did go down the route of converting to an interest only mortgage though, it's £97 a month, lol! Just gotta make sure Virgin are OK with me renting (Assume they would)

I'd rather just come out of my fixed mortgage term, with extra capital in the house, meaning I don't have to pay to end my mortgage term early, and then sell.

The Moose

22,821 posts

208 months

Wednesday 25th May 2016
quotequote all
The other side of the coin is what do you think is going to happen to the property market in your area over the next couple of years? Do you think it'll go down, stay the same, increase? And if so, to what extent?

lukefreeman

Original Poster:

1,492 posts

174 months

Wednesday 25th May 2016
quotequote all
The Moose said:
The other side of the coin is what do you think is going to happen to the property market in your area over the next couple of years? Do you think it'll go down, stay the same, increase? And if so, to what extent?
Very good point, and on paper the only risk I can see........It has gone up over the past 5 years.

The Moose

22,821 posts

208 months

Wednesday 25th May 2016
quotequote all
lukefreeman said:
The Moose said:
The other side of the coin is what do you think is going to happen to the property market in your area over the next couple of years? Do you think it'll go down, stay the same, increase? And if so, to what extent?
Very good point, and on paper the only risk I can see........It has gone up over the past 5 years.
Past performance is no guarantee of future results wink

So, as I said, what do you think is going to happen?!

I don't know what your current house is worth - I could probably work it out from the figures you've given, however if it's worth £300k and you think it'll go up 20% in capital value over the next 2 years then you'd be nuts to turn down that £60k IMHO. Likewise, if you think it'll go down 20% in capital value, then you'd be nuts to keep it.