Help - need to move house. Advice needed..
Discussion
Hello chaps – after a bit of advice from people more knowledgeable than I on matters financial.
Bit convoluted so bear with me.
Mrs Gearchange and I are expecting our third (and definitely final) child in the next 6 weeks.
We already have 2 youngish kids and a 3 bed semi which is now far too small for us.
We need to move house – but there are some complicating factors..
My wife is about to give up work so we can only rely on my salary to secure the mortgage – shouldn’t be too much of an issue as I am lucky enough to have a very good basic salary.
Our current home is in negative equity – probably to the tune of around 20K so not only does selling this not deliver any cash towards the deposit – selling the place will actually cost me £20,000.
Fortunately I will have around £125K in cash to fund the move.
I figure that the purchase price of a new property will be around the £450K mark – so I will need around £90-£115K for the deposit to secure a decent mortgage rate.
I have an outstanding loan of around 15K currently – but no other loans or credit cards.
If I’m about to burden myself with a significantly larger mortgage I don’t want to have ANY other debts so will pay off the loans – which gives me around £110K in cash which would just enough to fund the move IF I don’t sell my current property.
So here are the questions:
1) If I rent my current property am I legally obliged to tell the bank? I couldn’t swap to a Buy to let mortgage as the property has a lot of negative equity in any case.
2) If I rent the property I assume I will be liable to pay tax on the income at 45% - I don’t want to do this. If my wife is no longer working due to arrival of the third child could I simply put the house in her name and the rental income come to her? I assume that she would have to pay very little tax (if any at all) as the total income from rental would be less than £9K per year and she would have no other income. How easy is it to put the property in her name alone?
3) Am I going to struggle to get a mortgage for a new property if I already have a mortgage on a property in negative equity?
I could wait another 15 months to build up some additional cash reserves to make things easier – but five of us in a 3 bed semi – which also doubles as my office – and with a screaming newborn makes moving soon imperative.
Any advice you various sage’s can proffer?
Thanks in advance..
Bit convoluted so bear with me.
Mrs Gearchange and I are expecting our third (and definitely final) child in the next 6 weeks.
We already have 2 youngish kids and a 3 bed semi which is now far too small for us.
We need to move house – but there are some complicating factors..
My wife is about to give up work so we can only rely on my salary to secure the mortgage – shouldn’t be too much of an issue as I am lucky enough to have a very good basic salary.
Our current home is in negative equity – probably to the tune of around 20K so not only does selling this not deliver any cash towards the deposit – selling the place will actually cost me £20,000.
Fortunately I will have around £125K in cash to fund the move.
I figure that the purchase price of a new property will be around the £450K mark – so I will need around £90-£115K for the deposit to secure a decent mortgage rate.
I have an outstanding loan of around 15K currently – but no other loans or credit cards.
If I’m about to burden myself with a significantly larger mortgage I don’t want to have ANY other debts so will pay off the loans – which gives me around £110K in cash which would just enough to fund the move IF I don’t sell my current property.
So here are the questions:
1) If I rent my current property am I legally obliged to tell the bank? I couldn’t swap to a Buy to let mortgage as the property has a lot of negative equity in any case.
2) If I rent the property I assume I will be liable to pay tax on the income at 45% - I don’t want to do this. If my wife is no longer working due to arrival of the third child could I simply put the house in her name and the rental income come to her? I assume that she would have to pay very little tax (if any at all) as the total income from rental would be less than £9K per year and she would have no other income. How easy is it to put the property in her name alone?
3) Am I going to struggle to get a mortgage for a new property if I already have a mortgage on a property in negative equity?
I could wait another 15 months to build up some additional cash reserves to make things easier – but five of us in a 3 bed semi – which also doubles as my office – and with a screaming newborn makes moving soon imperative.
Any advice you various sage’s can proffer?
Thanks in advance..
Mr Gearchange said:
So I tell the bank who will want to move me onto a BTL mortgage - which means I would still need to pony up 20k+ as nobody is going to give me a BTL mortgage where the loan exceeds the value of the property by 20k.
In which case I may as well just sell it and take the 20k hit?
I dont think you necessarily need to switch to a BTL mortgage just yet but just get 'consent to let' which usually lets you do it up to 3 yrs. This means you wont techincally get a new mortgage (requiring 25% equity for a BTL minimum).In which case I may as well just sell it and take the 20k hit?
They can often have a clause in the mortgage which says they can up the rate if you let it - my mortgage from Nationwide for example says they will add 1.5% to the rate if I use their consent to let. But this will at least allow you to move, keep the other house on tickover and then sell - who knows in 3 years you may be out of negative equity and can sell then; you may however then be subject to capital gains I believe.
And assuming you can fund the move without the (non existent at the moment) money from a sale and your rental income will be at least 125% of the current repayments, you dont have to wait until your house sells to move which could take months if you are in a slow area which I assume you are as you are in negative equity. This is a big plus as you are chain free and this will put you in a good position to buy.
Edited by vescaegg on Wednesday 8th January 16:26
Mr Gearchange said:
1) If I rent my current property am I legally obliged to tell the bank? I couldn’t swap to a Buy to let mortgage as the property has a lot of negative equity in any case.
2) If I rent the property I assume I will be liable to pay tax on the income at 45% - I don’t want to do this. If my wife is no longer working due to arrival of the third child could I simply put the house in her name and the rental income come to her? I assume that she would have to pay very little tax (if any at all) as the total income from rental would be less than £9K per year and she would have no other income. How easy is it to put the property in her name alone?
3) Am I going to struggle to get a mortgage for a new property if I already have a mortgage on a property in negative equity?
I could wait another 15 months to build up some additional cash reserves to make things easier – but five of us in a 3 bed semi – which also doubles as my office – and with a screaming newborn makes moving soon imperative.
Any advice you various sage’s can proffer?
Thanks in advance..
1) You should tell the bank. Your mortgage is based on it being your primary residence, which it won't be if you rent it.2) If I rent the property I assume I will be liable to pay tax on the income at 45% - I don’t want to do this. If my wife is no longer working due to arrival of the third child could I simply put the house in her name and the rental income come to her? I assume that she would have to pay very little tax (if any at all) as the total income from rental would be less than £9K per year and she would have no other income. How easy is it to put the property in her name alone?
3) Am I going to struggle to get a mortgage for a new property if I already have a mortgage on a property in negative equity?
I could wait another 15 months to build up some additional cash reserves to make things easier – but five of us in a 3 bed semi – which also doubles as my office – and with a screaming newborn makes moving soon imperative.
Any advice you various sage’s can proffer?
Thanks in advance..
2) As mentioned, you will only pay tax on the profit, not the gross monthly amount. Once you deduct mortgage interest and costs, the figures would be fairly low I'd guess.
3) Potentially. It depends on the exact figures involved eg your income figures and then whether your property will be self financing in the eyes of the lender or not. If it's not (eg the rental figure isn't more than 125% of your mortagge payment) then they will take your current mortgage payment as an ongoing commitment and reduce your lending capacity according. Again, the figures involved are going to dictate whats possible.
I'm a mortgage broker, feel free to drop me a mail/PM if you want a more specific chat
The current property would be self financing in terms of rental. I would see around a 400 PM surplus.
I have absolutely no desire to own a rental property - I would only rent until either:
1). I had saved the 20k odd to afford to shift it at a loss or;
2). The price had recovered to a position where I wouldn't lose money.
Scenario 1 is the far more likely position in the near term (9-18 months)
Can I transfer the house to my wife who will soon have no income - so to avoid paying 45% tax on the £400 per month 'profit'? I assume she could declare the £400 per month as income and pay no tax?
ETA - thanks for the offer. I will drop you a PM..
I have absolutely no desire to own a rental property - I would only rent until either:
1). I had saved the 20k odd to afford to shift it at a loss or;
2). The price had recovered to a position where I wouldn't lose money.
Scenario 1 is the far more likely position in the near term (9-18 months)
Can I transfer the house to my wife who will soon have no income - so to avoid paying 45% tax on the £400 per month 'profit'? I assume she could declare the £400 per month as income and pay no tax?
ETA - thanks for the offer. I will drop you a PM..
Edited by Mr Gearchange on Wednesday 8th January 16:42
Mr Gearchange said:
The current property would be self financing in terms of rental. I would see around a 400 PM surplus.
I have absolutely no desire to own a rental property - I would only rent until either:
1). I had saved the 20k odd to afford to shift it at a loss or;
2). The price had recovered to a position where I wouldn't lose money.
Scenario 1 is the far more likely position in the near term (9-18 months)
Can I transfer the house to my wife who will soon have no income - so to avoid paying 45% tax on the £400 per month 'profit'? I assume she could declare the £400 per month as income and pay no tax?
ETA - thanks for the offer. I will drop you a PM..
No problem at all, whenever you're ready.I have absolutely no desire to own a rental property - I would only rent until either:
1). I had saved the 20k odd to afford to shift it at a loss or;
2). The price had recovered to a position where I wouldn't lose money.
Scenario 1 is the far more likely position in the near term (9-18 months)
Can I transfer the house to my wife who will soon have no income - so to avoid paying 45% tax on the £400 per month 'profit'? I assume she could declare the £400 per month as income and pay no tax?
ETA - thanks for the offer. I will drop you a PM..
Edited by Mr Gearchange on Wednesday 8th January 16:42
With regards to the tax and placing the property in your wifes name, you'd be better taking the correct advice from an Accountant. There are a few on here who may be along shortly...
Mr Gearchange said:
Can I transfer the house to my wife who will soon have no income - so to avoid paying 45% tax on the £400 per month 'profit'? I assume she could declare the £400 per month as income and pay no tax?
I think you may find that the mortgage company involved may object to that one......Also as you are a top tax payer I'm assuming all your cash is already in Mrs Gearchanges name so that will already be using a hefty chunk of the allowance.
if the house is in joint names the revenue will swallow her taking the income from the rental property. the current lender though, will not accept a transfer into her name for all of the reasons stated in your OP.
my portfolio is predominantly in my name but the income is split 50/50 with Mrs West and the revenue are fine with that.
also remember that all of the other costs attributed to the rental will be deductable too, soo you might reduce the £400 by the time you've finished.
if paying the loan off precludes you from obtaining a better rate becuase you exceed a certain LTV ratio (typically 75% on the numbers your are talking) then it might be worth keeping the loan and paying that off next.
my portfolio is predominantly in my name but the income is split 50/50 with Mrs West and the revenue are fine with that.
also remember that all of the other costs attributed to the rental will be deductable too, soo you might reduce the £400 by the time you've finished.
if paying the loan off precludes you from obtaining a better rate becuase you exceed a certain LTV ratio (typically 75% on the numbers your are talking) then it might be worth keeping the loan and paying that off next.
Sir Bagalot said:
Mr Gearchange said:
Can I transfer the house to my wife who will soon have no income - so to avoid paying 45% tax on the £400 per month 'profit'? I assume she could declare the £400 per month as income and pay no tax?
I think you may find that the mortgage company involved may object to that one......Also as you are a top tax payer I'm assuming all your cash is already in Mrs Gearchanges name so that will already be using a hefty chunk of the allowance.
I'm on PAYE and am lucky enough to be paid very well.
Mrs Gearchange earns very little (circa 500 PCM) - and will soon earn nothing with arrival of baby. We have a joint account but my earnings are all taxed at source on PAYE - there is no clever shuffling of earnings to reduce the overall tax burden. I pay a lot of tax - she pays nothing.
Mr Gearchange said:
Sir Bagalot said:
Mr Gearchange said:
Can I transfer the house to my wife who will soon have no income - so to avoid paying 45% tax on the £400 per month 'profit'? I assume she could declare the £400 per month as income and pay no tax?
I think you may find that the mortgage company involved may object to that one......Also as you are a top tax payer I'm assuming all your cash is already in Mrs Gearchanges name so that will already be using a hefty chunk of the allowance.
I'm on PAYE and am lucky enough to be paid very well.
Mrs Gearchange earns very little (circa 500 PCM) - and will soon earn nothing with arrival of baby. We have a joint account but my earnings are all taxed at source on PAYE - there is no clever shuffling of earnings to reduce the overall tax burden. I pay a lot of tax - she pays nothing.
Would the place actually return a 'profit'? Have you compared it to others in the area?
You must tell your bank if you want to rent it out. They can do (as someone else mentioned) a consent to lease which allows you to rent it out. If you don't do this, the bank can force sale if they find out - it'll state it somewhere in your mortgage agreement.
In all likelyhood, your mortgage will go up if you transfer, so consider the increase against any rental income. After advertising, searches, finding new tenants when one moves out (and paying the mortgage yourself) this is all deductable and you might find shows you actually at a loss on the property. Consequently, you have no tax to pay.
A word of caution though - being a 'reluctant landlord' can be a real pain in the arse. Tenants are people and therefore some more awkward and demanding than others. Plus, you need to consider if you ever wish to sell, can you afford BOTH mortgages for say 6-12 months - plus find the 20k you need to pay off the mortgage once sold? In all likelyhood as soon as the For Sale board goes up, your tenant will leave.
Consider it carefully as it can become a real burden. Best of luck and congrats on the new arrival!
You must tell your bank if you want to rent it out. They can do (as someone else mentioned) a consent to lease which allows you to rent it out. If you don't do this, the bank can force sale if they find out - it'll state it somewhere in your mortgage agreement.
In all likelyhood, your mortgage will go up if you transfer, so consider the increase against any rental income. After advertising, searches, finding new tenants when one moves out (and paying the mortgage yourself) this is all deductable and you might find shows you actually at a loss on the property. Consequently, you have no tax to pay.
A word of caution though - being a 'reluctant landlord' can be a real pain in the arse. Tenants are people and therefore some more awkward and demanding than others. Plus, you need to consider if you ever wish to sell, can you afford BOTH mortgages for say 6-12 months - plus find the 20k you need to pay off the mortgage once sold? In all likelyhood as soon as the For Sale board goes up, your tenant will leave.
Consider it carefully as it can become a real burden. Best of luck and congrats on the new arrival!
The advice here is good, I would only underline the point that telling your existing lender is essential unless you are a very high earner, or when the new mortgage is sourced the new lender will calculate your borrowing capacity on the aggregate (i.e. both mortgages).
If you can show them a consent to let or BTL mortgage offer and proof of rental it will be ignored and considered self-funding.
Agree also that first port of call will be the existing lender to obtain consent to let, if they will do it while you're underwater I'll eat your hat, my hat, and Sarnies!!
Good luck with #3, we got to 3 and bought a dog next!
If you can show them a consent to let or BTL mortgage offer and proof of rental it will be ignored and considered self-funding.
Agree also that first port of call will be the existing lender to obtain consent to let, if they will do it while you're underwater I'll eat your hat, my hat, and Sarnies!!
Good luck with #3, we got to 3 and bought a dog next!
OP one thing you might want to consider is your reasons for renting out your current house. It sounds like your only reason for doing this is because of the negative equity. If there was £20k of positive equity would you then be selling it?
Look at it from a cold business point of view. Is it a good rental investment? Is there a ready supply of tenants? What yield can youm expect and are there better rental investments in different areas? Are you prepared for the risk of further negative equity? If you didn't own this property, would you consider buying it as an investment? Do you have the time and incliniation for the work involved in renting a property?
Look at it from a cold business point of view. Is it a good rental investment? Is there a ready supply of tenants? What yield can youm expect and are there better rental investments in different areas? Are you prepared for the risk of further negative equity? If you didn't own this property, would you consider buying it as an investment? Do you have the time and incliniation for the work involved in renting a property?
No, I have absolutely no desire to own a rental property as frankly, it all sounds like a massive ballache.
My only reason for exploring the rental option is that when I sell it to move house I'll need to find another £20,000 to cover the negative equity.
Looks like I'm best off just taking the hit.
Many thanks to everyone for their help and advice.
My only reason for exploring the rental option is that when I sell it to move house I'll need to find another £20,000 to cover the negative equity.
Looks like I'm best off just taking the hit.
Many thanks to everyone for their help and advice.
Is extending the current property not an option? I know you're only six weeks or so away from the arrival of the last of your tribe but your going to struggle to sell and complete on any new property and get it even remotely like home in that time.
My point being that with the relaxing of planning laws you may be able too extend in a slightly longer timeframe and keep most of your savings and not uproot the family at a great but sometimes draining time.
My point being that with the relaxing of planning laws you may be able too extend in a slightly longer timeframe and keep most of your savings and not uproot the family at a great but sometimes draining time.
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