Discussion
Have been in my current house for about 5 years now. In the next 2 years I think we will want / need a bigger house.
In August my fixed term mortgage is up and i plan to pay off a large chunk of it. This will bring the mortgage down to between £500 - £600 a month. Depending on what rates i get.
Rental income will be around £1,500 a month.
I guess keeping the house as a rental will work out more expensive in the short term, but long term we will always have it if we need to sell. And always have an income from it.
So... do i sell the house and use the proceeds to reduce my new mortgage. Or do i rent the house out and use the monthly proceeds to help pay the new mortgage?
In August my fixed term mortgage is up and i plan to pay off a large chunk of it. This will bring the mortgage down to between £500 - £600 a month. Depending on what rates i get.
Rental income will be around £1,500 a month.
I guess keeping the house as a rental will work out more expensive in the short term, but long term we will always have it if we need to sell. And always have an income from it.
So... do i sell the house and use the proceeds to reduce my new mortgage. Or do i rent the house out and use the monthly proceeds to help pay the new mortgage?
It almost always makes sense to keep it if you can, you will profit from the rental income in the short term and capital growth in the long term. However you now need to consider the additional 3% SDLT if you move, as someone pointed out above.
You would need to give more info for someone to really "run the numbers". The mortgage payments of £500-£600, is that interest only? If not, it usually makes sense to have a rental property on interest only, which means the repayments would be even less. You could even release some equity as part of the re-mortgage (assuming a favourable LTV) to help with the next purchase.
You could calculate the rental yield and ROI, but that's usually more important to someone deciding whether or not to buy a property, the fact that you already own it makes the yield less relevant (although still a factor). You could argue that the cost to acquire the investment is zero (as you already own it), so assuming that it makes a profit on rental income, you can't go wrong. Some might argue that the cost to acquire the investment is 3% of the new place, because if you didn't keep this place, you wouldn't pay the extra 3%.
What's the LTV and property value?
You would need to give more info for someone to really "run the numbers". The mortgage payments of £500-£600, is that interest only? If not, it usually makes sense to have a rental property on interest only, which means the repayments would be even less. You could even release some equity as part of the re-mortgage (assuming a favourable LTV) to help with the next purchase.
You could calculate the rental yield and ROI, but that's usually more important to someone deciding whether or not to buy a property, the fact that you already own it makes the yield less relevant (although still a factor). You could argue that the cost to acquire the investment is zero (as you already own it), so assuming that it makes a profit on rental income, you can't go wrong. Some might argue that the cost to acquire the investment is 3% of the new place, because if you didn't keep this place, you wouldn't pay the extra 3%.
What's the LTV and property value?
Property valued at about 400k.
Will be about 125k remaining on mortgage.
Want to go for a 2nd property in the region of 800k
Mortgage repayments of £6-700 is capital and interest, I do want to pay the thing off completely.
£1,500 a month rental is realistic
An aditional 3% stamp is just nuts. What a fecking piss take. Thats £54,000 in stamp alone.
Will be about 125k remaining on mortgage.
Want to go for a 2nd property in the region of 800k
Mortgage repayments of £6-700 is capital and interest, I do want to pay the thing off completely.
£1,500 a month rental is realistic
An aditional 3% stamp is just nuts. What a fecking piss take. Thats £54,000 in stamp alone.
dmitsi said:
Speak to your mortgage lender and see if you can transfer your current residential mortgage to a buy to let before April. Then you can avoid the extra 3% and your main residential will not be liable to the extra strap duty.
Is that actually how it works though? Surely any property bought after the changes is subject to the extra 3%?My understanding is you can sell and buy a primary property whilst owning another without incurring the additional rate.
If you can say your property is not your primary home, i.e. rent somewhere, move in with parents etc, and convert fully to buy to let, then I would think you will avoid the extra stamp when buying your new home.
I was in a not dissimilar position two years ago, i kept my flat and rent it out, im glad i did, its not just income / growth, it represents flexibility for future situations, I have also benefited thus far from fairly aggressive price movement in rental revenue and value, but who knows what the future holds for that.
One thing i would say, is also be aware of the tax changes coming regarding tax relief on the funding, it only really makes sense now if you have sizeable equity in the rental property, which you do.
Long term, i still think for many reasons its a good call, but its no longer a no brainer for everyone.
If you can say your property is not your primary home, i.e. rent somewhere, move in with parents etc, and convert fully to buy to let, then I would think you will avoid the extra stamp when buying your new home.
I was in a not dissimilar position two years ago, i kept my flat and rent it out, im glad i did, its not just income / growth, it represents flexibility for future situations, I have also benefited thus far from fairly aggressive price movement in rental revenue and value, but who knows what the future holds for that.
One thing i would say, is also be aware of the tax changes coming regarding tax relief on the funding, it only really makes sense now if you have sizeable equity in the rental property, which you do.
Long term, i still think for many reasons its a good call, but its no longer a no brainer for everyone.
Edited by gibbon on Thursday 4th February 11:40
timbutjack said:
Is that actually how it works though? Surely any property bought after the changes is subject to the extra 3%?
Your residential mortgage is not subject to the further 3% (but should you buy a second residential mortgage it is subject to extra 3%). You can have several BTL mortgages (all subject to the extra 3% after April), but selling your main residence and buying a new one will not incur the extra 3%. If there is a cross over period when you own two main residential mortgages you will be charged the extra 3%, but can reclaim this as long as you get back to just one residential mortgage within a certain timeframe (maybe 6 months but not certain)If the OP was able to transfer his residential to a BTL mortgage before April he will avoid the 3% and would not be liable to pay an extra 3% when taking out a new (and only) residential mortgage.
Yes it is thought that primary residences will be exempt the extra 3% and will be treated seperatly from your BTL portfolio. How the OP would get around not selling his primary residence and buying another property I'm not sure. This may help.
http://www.thisismoney.co.uk/money/buytolet/articl...
I have a small BTL portfolio and I am in the process of selling my home to by another and I was obviously concerned about the change. Even my solicitor seems unsure exactly what will happen at the moment as HMRC have yet to issue definate details.
http://www.thisismoney.co.uk/money/buytolet/articl...
I have a small BTL portfolio and I am in the process of selling my home to by another and I was obviously concerned about the change. Even my solicitor seems unsure exactly what will happen at the moment as HMRC have yet to issue definate details.
dmitsi said:
Your residential mortgage is not subject to the further 3% (but should you buy a second residential mortgage it is subject to extra 3%). You can have several BTL mortgages (all subject to the extra 3% after April), but selling your main residence and buying a new one will not incur the extra 3%. If there is a cross over period when you own two main residential mortgages you will be charged the extra 3%, but can reclaim this as long as you get back to just one residential mortgage within a certain timeframe (maybe 6 months but not certain)
If the OP was able to transfer his residential to a BTL mortgage before April he will avoid the 3% and would not be liable to pay an extra 3% when taking out a new (and only) residential mortgage.
I'm struggling to follow this. You are charged stamp duty on the purchase price of the house, nothing to do with a mortgage. Even if you buy for cash you still pay SD.If the OP was able to transfer his residential to a BTL mortgage before April he will avoid the 3% and would not be liable to pay an extra 3% when taking out a new (and only) residential mortgage.
As above, most people dont really need two houses - hence the 3 %.
In a similar vein, the mortgage interest offsetting advantages to BTL are being reduced too. Its all intended to level the playing field between those folks that see property as a home and those that want to use property as an investment vehicle.
It does seem unfair, but its an area of business where "business men/women" (which is what you become when you take on an addition property for profit etc) become in effective competition for houses the with "man in the street joe blogs" who wants somewhere to live.
It seems unfair that a legitimate business expense cant be as fully offset against tax as before and indeed as in other businesses, but when it collides with an ordinary person that needs a house and cant do as such - eg prices are bid up by the sums working better for a business, they've decided to start evening it up. - Wouldnt it be great if I could offset my mortgage interest against my income tax?
Two people grappling for a common commodity - one already has a home and wants to snaffle another for business purposes vs someone who just want to live in one house as a basic human need.
Seems fair to me. Could get even fairer to be honest.
In a similar vein, the mortgage interest offsetting advantages to BTL are being reduced too. Its all intended to level the playing field between those folks that see property as a home and those that want to use property as an investment vehicle.
It does seem unfair, but its an area of business where "business men/women" (which is what you become when you take on an addition property for profit etc) become in effective competition for houses the with "man in the street joe blogs" who wants somewhere to live.
It seems unfair that a legitimate business expense cant be as fully offset against tax as before and indeed as in other businesses, but when it collides with an ordinary person that needs a house and cant do as such - eg prices are bid up by the sums working better for a business, they've decided to start evening it up. - Wouldnt it be great if I could offset my mortgage interest against my income tax?
Two people grappling for a common commodity - one already has a home and wants to snaffle another for business purposes vs someone who just want to live in one house as a basic human need.
Seems fair to me. Could get even fairer to be honest.
Edited by BL Fanboy on Thursday 4th February 12:23
BL Fanboy said:
Stuff
Its not for business reasons, or greed. Its so I will have a pension. I don't hold out much hope for current pension schemes to ever really pay out properly.Then again, I have been brought up to provide for my self, I could sell everything and get some nice cars then expect the "System" to fully support me in my old age.
The next thing, once I have scrimped and saved through my life to buy two property's that are too look after me in my old age. Is that I will be expected to sell them to pay for my own care once i can no longer look after my self. Whilst others get it given to them.
TAX, life and death is simply not fair. EVERYONE should pay the same flat rate tax. No matter how rich or poor. THAT is a levil playing field!
Prizam said:
And by selling, i will have almost half the mortgage. Humm...
I was thinking exactly that as well.And £1500/mth on a £400K property is only 4.5% gross. I seem to know a lot of accidental landlords and they quote impressive yields but they're using the price they paid - which in some ways is fair enough, that was their investment.
I don't mind saying I'm jealous of the ones who did it 15-20 years ago - they've mostly paid for the property now and have had fabulous increases in value. It doesn't seem feasible to repeat that, but it probably didn't seem feasible then either.
As usual there are alot of unintended consequences. For example the only chance most young people have of moving up the ladder is to buy a series of dilapidated properties and do them up. Under these rules a young couple living in a 1 bed flat which they own wanting to buy a knackered old 3 bed teraced house requiring complete rennovation will be hit with a 3% SD tax as they are buying a second property. It's all well and good to say they can reclaim it But 1) they may well not have the cash to pay the extra 3% in the first place and 2) what if it takes more than 6m to rennovate? It's going to ****up a major section of the market. I'd never vote Labour buy George Bloody Osbourne is a nightmare chancellor.
oldnbold said:
I'm struggling to follow this. You are charged stamp duty on the purchase price of the house, nothing to do with a mortgage. Even if you buy for cash you still pay SD.
I was explaining relating to the OP. Exchange the word mortgage for purchase. I tried to explain it as simply as possible as it seems to be confusing a lot of people.Gassing Station | Homes, Gardens and DIY | Top of Page | What's New | My Stuff