LG John

I'm looking for some advice on where I stand on a number of issues relating to the above.

My story, briefly, is that I'm a professional gambler (poker player) and my wife works in a fairly low paid job. We have a 2 bedroom flat, with a mortgage, which I took out when I was still in full-time employment. At some point within the next 1-3 years we intend to start a family but our flat, whilst fairly spacious, isn't ideal and thus we'd want to move to a bigger place.

I fear in current financial climate it would be near impossible for us to get a mortgage as my wife's wages alone wouldn't come close and I'd have to self-certify. I therefore have considered moving into the rental market with a view to potentially renting out my property. I'd rather not sell it in the current depressed market if there was no need to do so. I believe that our flat on a fully-furnished basis could easily attract £600pcm and I've been looking at houses in outlying commuter towns 10-15 miles out of city limits. There seems to be a good choice of 3-4 bedroom modern detached homes in the £900-1100pcm range. If we sold up and paid back our mortgage we could afford those rates, or if we rented our place for circa £600pcm then we could also afford it as its' only an extra £300-500 per month to find.

My question is; if we rented a house, moved out and then put our home on the rental market would I be breaking any laws/conditions regarding my mortgage? Would we have to switch to a buy to let mortgage....which we'd probably be refused for? Also, would I have to pay tax on my rental income? The rental wouldn't be for profiteering or as a source of income but rather just a solution to our accommodation problem. We own no other properties. Ideally I'd like to think that we could find a place to rent, move in, rent our place and sit back and enjoy rental for our flat that covers the mortgage, a nicer, bigger house to start a family in and to still have our toe in the property market. My fear is that it'll be nowhere near this simple and that I'd have to get a buy to let mortgage (probably impossible) and declare rental as earnings (thus taking a chunk of it from us), etc.

I'd appreciate input on these matters. At the risk of sounding rude I'd also appreciate it you could clarify whether advice given is your 'understanding' of the situations or to the very best of your knowledge 'fact'. I want to avoid a situation where upon the outcome of this thread I spend the next year thinking down one line only to find the opinions expressed here were exactly that....opinions.

fivetide

iTrader: (1)

You don't need to switch to a buy to let per say but you do need to have permission to let from your mortgage provider.

This is because technically, they own the property so you have to let them know you aren't livign there.

I know Northern Rock work it out on whether the rental income will cover 125% of the mortgage assuming it is interest only. Even if you have a repayment type they still only work it out on the interest.

First thing to do then is find out how much flats like yours rent for then speak to your lender.

5t.

EDIT - also this isn't advice based on understanding - i did it at the end of last year. With a baby on the way we bought a house and with the depressed market decided to rent out our flat. As we got the mortgage quite a while ago it is still worth a lot more than the mortgage on it.

LG John

Thanks fivetide The mortgage is interest+capital and is around £500-600 per month depending on interest rate. Most it's ever been in last 6 years was £700 a month. I was looking at other similar rentals yesterday and I'm confident I could get £600-650pcm on a fully furnished basis. Could be tight if I need 125% of the interest per month.

LG John

Does HMRC view your rented flat as a source of income and tax you for it?

hodgy0_2

we did a similiar thing 3 years ago with our London house when we bought in the country

however, it was a time when it was relitively easy to convert our london mortgage to a buy to let one -- but as 5T has pointed out as long as your Mortgage Co is aware, thats the important thing, but some Mortgage Co's do require you to turn your mortgage into a BTL one.

Having said that if I was in the financial **** I would take the risk of not telling my Mortgage Co

My father-in-law's advice is never ask permission for anything if you think the answer will be "No" -- do it and wait to be told No


as for Tax, yes you would be liable for any income from your property, set against any allowable allowances. It makes financial sence to have an interest only mortgaage on your rented property as you can set 100% of it against the income

LG John

That would be fine then if the interest is tax deductible as my taxable income per year is currently £0.00. At £600x12 I'd earn £7200 in rental per year if fully occupied and with interest on the mortgage being around £400 per month I'm pretty sure that I'd come under the current threshold for where you start to pay tax. It's over £6k pa is it not now?

njkmrs

You will probably have to pay tax on it yes .
You can knock off the interest on the mortgage as an expense and around another 10% for maintenance expenses etc .It wont be masses of money to pay in tax for one property I would not think ,but your incomes will come into it also .An accountant would sort it out for you ,for about 150ish per year ,which also is included in your expenses ,again reducing your profit ,tax.
Regards
Rob.

al4x1

the other side of it is could you afford to live if your tennants decided to move out and you couldn't get another set in for a couple of months.

njkmrs

Very Good point .

fivetide

iTrader: (1)

Aye plus other costs. Basically it is worth telling them (HMRC) but that doesn't mean you will actually have to pay any tax on it.

Right now the interest part of your mortgage will be quite low but rents won't have moved as much. Once you have the agreement it doesn't matter if you only charge a pound a week you've been given the nod.

You'll need to get some evidence on how much you should expect in rent so either a letter from an agency or evidence off Rightmove will swing it.

As it happens the mortgage we have has gone down a lot in the past few months so the rent is now out stripping the mortgage (even on full repayment) so that's great but with other costs like insurance etc we are about break even point.

5t.

hodgy0_2

It is a very good point and is probably why so many BLTers are in the ****

Because they have to really "sweat" the asset to cover costs, which always leaves them vulnerable to people finding cheaper accommodation

PaulC72

Also do not rule out the one off costs too.

EPC, gas & elec certs, required once a year by law {elec may still not be law though}
decorating after tenants move out, so you could potentially be doing it on a 6 month rota at worse case.

If the tenant does a runner, you need to watch the empty period the costs soon add up.

Will you be managing it yourself as if not the fees are usually 10%

Speaking from doing it, we sold our house and decided it was too much aggro for us as we wanted to do other things.

Mortgage lenders have different criteria, some will say it is ok as long as you meet X set of rules and other will want you to be on a BTL as it helps cover the additional risk for them it is best to speak to them about it.

Good luck.