Mortgage and flat ideas

Tee Hee Johnson · 9 Feb 2018 at 20:16

Hello,

My gf and I are looking into upgrading from her fully owned flat to a house that we will mortgage and own equally.

She is struggling to decide if she should keep her flat, or use it as a big deposit.

Right now she is leaning towards renting it out, probably using an agency.

Are there any pitfalls that she should be aware of?

Is she silly to sell a flat she fully owns and can essentially profit from?

Any input would be great

Thanks

Shoeyuk · 9 Feb 2018 at 20:23

If you can find a good agent to rent it usually costs between 10 and 15% and deals with vetting tennents and dealing with them. Also helps if there are options as they have a group of trusted handymen to help fix things.

One thing to bear in mind as landlords would have to ensure gas appliances and electrics are regularly tested.

My work colleague used an agent and after a couple of years the tenets were good and were looking to stay he got rid of the agent and deals with them direct and saves him some money.

Richie · 10 Feb 2018 at 07:01

Would the income from the rent (after all deductions and saving some into a pot for maintenance) be more than the increase in mortgage payments on the new property due to increase in mortgage?

Martynt74 · 10 Feb 2018 at 08:46

Don’t forget if she doesn’t sell you’ll have to pay an extra 3% stamp duty.

Guess it also depends on your other financial elements. Can you both afford the new house without using the equity from the flat?

Depending how serious you are together it may also make sense for her to keep it as a separate asset should things not work out.

Tee Hee Johnson · 10 Feb 2018 at 15:04

We can afford what we want very comfortably, we are by no means stretching ourselves.

There would be no increase in mortgage, as there isnt one.

There would be on the new property, split 5050.

mickyflinn · 10 Feb 2018 at 19:39

Remember there can also be bad tennets as well as good.

HungryHippos · 10 Feb 2018 at 22:32

Can you afford the house on your name only? Would avoid the extra stamp duty then and could have some kind of gentlemens agreement on who gets what if things go sour.

Tee Hee Johnson · 10 Feb 2018 at 22:37

HungryHippos said:
Can you afford the house on your name only? Would avoid the extra stamp duty then and could have some kind of gentlemens agreement on who gets what if things go sour.

Why is the stamp duty extra?

I know we need to pay it on the new property, but surely not the old one too?

Tee Hee Johnson · 10 Feb 2018 at 22:38

mickyflinn said:
Remember there can also be bad tennets as well as good.

That is the main worry, but there could be issues, there might not... shame to not try due to a potential issue.

HungryHippos · 10 Feb 2018 at 23:15

Tee Hee Johnson said:
Why is the stamp duty extra?

I know we need to pay it on the new property, but surely not the old one too?

New one only yes.

x-st · 10 Feb 2018 at 23:29

Tee Hee Johnson said:
Why is the stamp duty extra?

I know we need to pay it on the new property, but surely not the old one too?

I assume if you're buying the property together it'll count as a second home (because your partner already owns a property), hence the extra hit on duty paid.

Psycho Sonny · 13 Feb 2018 at 17:31

Tee Hee Johnson said:
Why is the stamp duty extra?

I know we need to pay it on the new property, but surely not the old one too?

you will pay it on the full amount of the new property rather than over £160K. due to it being a second home you own.

samcat · 13 Feb 2018 at 17:38

Even if you use an agent, you need to know what legally should be done as, ultimately, the buck stops with you... If you get protecting the deposit/paperwork wrong it can cost you upto 3x the deposit as a penalty and you will struggle to get the tenants out (that are not paying rent and know how to play the system).

Dont let me put you off, I am a landlord and its great 99% of the time. Just need to understand and do it right, also lets you check on the agents work.
Join the National Landlords Association (NLA) and do the training they provide, worth every penny imo!

If you can afford to keep the flat and the area is good for renting then go for it!

You get 2 lots of property market rises and a regular(ish) income. Do your maths on it being empty for 2 months out of every 12 and everything else is a bonus.

You will need to do an annual tax return, no drama.. Get an accountant to do it for you, the cost is tax deductible anyway!

Freddie1980 · 13 Feb 2018 at 21:16

Tee Hee Johnson said:
Why is the stamp duty extra?

I know we need to pay it on the new property, but surely not the old one too?

He is talking about stamp duty on the new house you are buying. Since your girlfriend already owns a property (even when buying with someone who is first time buyer) it will count as a 2nd property and there will be an extra 3% stamp duty to pay on top of regular stamp duty (5% in total).

It's not only the stamp duty that makes this more expensive, since your renting it you will be generating an income which you will have to declare to the taxman, for a lot buy to let landlord this could be offset by deducting your mortgage interest element of your mortgage payment from your income. Now you can no longer do that which could potentially increase your tax bill at the end of the year. I would serious suggest talking to a good local tax accountant before going ahead with this, I making it sound expensive and complicated but in reality it's more of early drag. Having two properties is a great way invest money (but don't neglect pensions and stocks and shares investments either) and to stay ahead of inflation and I would recommend it to you but as I said speak to a good accountant so they can draw out for what it cost and if there is anything you can do to mitigate any tax burdens.

peige · 13 Feb 2018 at 21:31

Personally, don't. Just sell it and move forward. Renting is a pita now and the return doesn't justify the work. You'll likely not make anything out of it and at best it will cover its own bills if you don't get hit by a bad tenant, if you do you could loose big time.

Rented my old flat out when i moved on, I did ok and only my last tenant was poor in that although they paid the bills lots of things "broke" while they were there, they just didn't look after it and expected all to repaired free of charge and immediately. Glad to have got out of it, I gained due to property value going up but made nothing in 5 years of renting it out.
You have to do a proper tax return and when you go to sell you need to be aware of capital gains tax.

Tee Hee Johnson · 13 Feb 2018 at 22:16

@samcat thanks for the useful advice, we would be doing everything to the property needed, checks, certificates, etc. Should rent no problem, its nice and on the outskirts of Glasgow... places pop up here all the time to let, and are quickly gone. Annual tax return isnt too much of an issue, gf has her own business, so are fair use to doing that!

@Freddie1980 Ah I didnt know about stamp duty on a second home, thanks for that! We have done some calculations removing the 10% management fees, keeping a minimum of 25% aside and are fairly happy with the numbers, works out well as my gf is self employed and can have quiet weeks, so a guaranteed income is a big boon.

@peige Thanks for the input, we are fully prepared to take that route if need be. Just seems a shame not to try renting when we have the property already. Capital Gains Tax seems to have an allowance of £11000odd, so shouldnt really come into play. She does also seek tax advice when need be due to her business.

Thanks for the input all!

HungryHippos · 13 Feb 2018 at 23:12

I think if you sell within a couple of years you can get the 3% stamp duty you paid back as well, as you technically went from 1 home, to 2 homes, then back to 1 home. The reason I suggested putting the 2nd home just in your name if you can is that you would be classed as a first time buyer so you'd avoid the 3% thing, and then later if you get married you'd share assets anyway I think, don't think you'd get stung for stamp duty then.

Depends on finances of course as I have no idea how affordable that would be.

HangTime · 13 Feb 2018 at 23:36

Tee Hee Johnson said:
There would be no increase in mortgage, as there isnt one.

There would be on the new property, split 5050.

If you are going from no mortgage to having a mortgage then by definition there has to be an increase in mortgage!

I think the point being made was that if you sell the flat then you wouldn't need such a large mortgage on the house, as you'd have a larger deposit.

As for the question itself I guess it depends on how keen you are to become landlords, personally I don't think I'd want the hassle unless I was living in the rented property.

peige · 14 Feb 2018 at 07:44

HangTime said:
If you are going from no mortgage to having a mortgage then by definition there has to be an increase in mortgage!
I think the point being made was that if you sell the flat then you wouldn't need such a large mortgage on the house, as you'd have a larger deposit.

This really, your not losing anything by selling the flat, you'll roll the capital into the new house, the only thing you have lost is the liability of tenants. Seriously don't, you will regret it. The *only* positive would be for your girlfriend in that if you two go wrong she can get her own place back and leave you

touch · 14 Feb 2018 at 13:52

Presumably she'll have a significant deposit if she sells the flat and puts that towards the new house?
Are you able to match her large deposit? How are you going to get a 50:50 ownership of the house if you can't match her deposit?