Rent current house or sell?

[lukefreeman]

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.

[lukefreeman]

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?

[lukefreeman]

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?

[lukefreeman]

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]

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.

[lukefreeman]

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.

[lukefreeman]

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.

[lukefreeman]

Update:

We've decided to rent, and got a potential tenant lined up, who wants to view the house next week.

I'm gonna keep this thread up to date detailing:

. How much money I'm spending, and what on. (I.E. permission to let, LL insurance, increase in CIC/MDTA, refurb/fixes, no tenant periods)
. Mortgage balance at beginning and at bi yearly intervals.
. Interest paid off at bi yearly intervals.
. Money in at bi yearly intervals.
. Overall profit/loss (Assuming house price stays the same).

Assume there'll be some people interested in this, so it may help someone out :-)