Many people in the UK are deciding to move without selling their current property, this has become increasingly popular for people who do not want to sell their existing home because they are relocating temporarily or for people looking to buy a second home and use their present one to raise a mortgage, for example those people who would rather buy than rent during their relocation. It’s also a good option for those people who can’t sell their homes please see our article Let to Buy investments.
There are many advantages to keeping a property and renting it out, as it could give really good returns in an area with high rental demand. It also means that you can own two homes rather than one so you can benefit from an ascending market.
However you will need to check with your current mortgage provider to make sure they are happy for you to let out your property.
How can I finance two properties?
Home owners with plenty of equity in their current property will be able to ask to increase the size of their mortgage on their existing property to finance another property, so for example if you need to raise a deposit to buy your second home this might be a possibility, however if you are planning on covering this extra loan with your rental income you need to make sure your property income will cover this. You will then need to take out another mortgage on your second property which will be covered by your income. A good local agent such as Intercounty will be able to work an estimation of figures to make sure you can earn enough throughout the year to cover your mortgage.
Once you have worked out how much money you can make from your rental property you will then need to take into consideration paying tax on your entire income, not just the profits. As from 2017 landlords will only be able to claim tax at a rate of 20% regardless of their tax band, with landlords in the higher tax band paying 40% on their rental income. Many landlords are starting limited companies to negate these tax payments.
It’s also good to remember that although you will not need to pay Capital gains if you sell your main home, the one you are residing in, you might need to pay Capital gains on any profits you make if you have to sell your second home.