rent current house and buy new?

I am in my first house just over 5 years. Both I and the wife work and have 2 kids.

Our mortgage is 250k over 30 years. We have never missed a payment and have at times paid extra money off the mortgage. (approx 10k) our monthly payments are well under a grand a month and is never an issue. (sign of the time, we pay more for child minding than we do for our mortgage)

Anyway our house is conservitivly valued at about €390k.
My question is would the lending(very general I know) institutes be willing to let us keep our current house and rent it out(we should get €1200pm which will well cover the mortgage and a few bob for maintenance) and then give us a new mortgage to buy a house with a value of say €700k. (say 92% mortgage)We did some figures and reckon we could just about afford it. I am thinking this as a couple of houses in our estate have been on the market a while now but there is always people looking to rent and the area is near hospitals/colleges/ind estate.


Fairly vague question I know. Just need to know is the president there before I approach lenders.

Re: rent current house and buy new??

I think from your post that you need to look at all the implications of this move before you make a decision

- rental income on a non-PPR will attract tax
- when you go to sell the house, it will attract SD clawback/CGT
- extra expense involved in being a landlord
- SD on a €700k house would be approx. €63k.

It would make more sense if you were to sell your existing house and then buy a new one, but I guess in the current market you wouldn't be too confident about selling your house?

Re: rent current house and buy new??

for reasons that would be banned - you are five years too late for this strategy - I did exactly this in 2001 - sold in 2006 quids in - the tide is ebbing now - minimise your debt for the financial uncertainties ahead

Re: rent current house and buy new??

Derryman, are you Mr. G Lee in diguise?

Re: rent current house and buy new??

hopefully biffo will have some good news today in relation to SD.

Re: rent current house and buy new??

no - just a hard nosed well off northerner who does not buy VI bullsh&te

Re: rent current house and buy new??

You say that you could just about afford the new mortgage. Thus you could probably not afford to pay both the new mortgage and the old mortgage in the event that you could not find a tenant or you were between tenants. You ought to stress test your finances - how long could you pay both mortgages for?

Re: rent current house and buy new??

people who have rented thier houses in the estate tell me there was never any hassles getting tennents. If the rent was more then the mortgage then indeed i would put the extra as a wee little slush fund in case i could not get a tennent. would also look at one of the schems with the CC the guarentee rent for 4 years.

thanks for all the input thus far.

Re: rent current house and buy new??

I hope that it always stays rented then!

These key topics might be of interest to the original poster:

Sell home or keep as an investment?
Interest only mortgage for investment property

I second previous poster who said, "you are five years too late for this strategy".

The reasons for becoming an accidental landlord created by cheap interest rates and booming house prices do not exist today. Your Bank would also be wary of lending you €900,000 (existing and new mortgage) unless you could show real ability to absorb say a 2% increase in rates.

Unless you have a real interest in becoming a landlord and have the personal attributes for dealing with tenants don’t do it as it’s not for the light hearted. There are a few threads in AAM about dealing with tenants which make interesting reading.

You should ask yourself what brought this up

a. Desire to move to a bigger/better house
b. Desire to have a rental property nest egg.
c. Everybody else has done it, why shouldn’t we?

What I’d do if I was in your shoes, I would sit tight for the next 12 months, make a committed effort to pay an additional lump sum off your mortgage each month (as much as possible).

So in 12 months time you would;
Have a better idea of how much you can pay off mortgage each month while still living a comfortable life.
Have a better idea of how the property market is faring (I’d be worried that yesterday’s stamp duty and M I Relief reforms will give a short lived boost to property market)
Be in a position that if u did want to buy a new property you have shown your bank manager that you have consistently paid in excess of your mortgage payments

I have some notions of doing something similar (for the hard-nosed reason that my wife wants to move house!) and I am wondering what the Capital Gains implications are in case of eventual sale of the current (first) house which is our PPR.

It has been PPR for 13 years - is there some time-based reduction in CGT in this case?

Thanks

Camry said:

Could you clarify your financial position? At first glance it doesn't seem to add up for me.

I am assuming you are 5 years into a 30 year term with €250k outstanding. By my calculations, that would require monthly repayments of €1,300 per month to repay capital and interests over the remaining 25 years. HOwever, you stated that your repayments were "well under €1,000".

My trusty HP 12C tells me that €250k repayed in reducing balance over 25 years at a rate of €900 per month (as a proxy for "much less than €1,000") implies an annual interest rate of 0.6%!!!!

If I make the most generous assumptions I can given your information; that €250k was the original loan, now amortised 5 years, minus a $10k capital repayment, that would leave €212,266 outstanding for repayment over the remaining 25 years. Again, I calculate the implied interest rate assuming repayments of €900 per month and I get 2.0%. This doesn't look a sensible result.

Until this is clarified I would not go any further.

Click to expand...

Have you included TRS relief into your calculations? That could save them up to 266 per month (wouldn't be as much as that as their interest isn't 16K p.a)

Could you pay a 92% mortgage of a 700K house out of your current earnings only. Are you assuming that some of the rent will cover this mortgage? Bear in mind that the rent calculation on your current house should be in general based on 10 months and that the rent is taxable.