not selling your old house when you move

Zaph0d

A couple I know are trading up from a house worth 400 to one worth 550. They have 300k equity in the first house, due to buying at the start of the property boom. I'd guess their incomes at 45k and 55k. Sounds ok but...they have got permission from the bank not to sell the first house and to take out a mortgage on both properties together. The joint mortgage will be for 650K on two properties worth a total of 950K. They have no savings of course, being carefree young people.

They plan to rent out the first house so I guess they included this in their income projections.

This seems like a crazy level of exposure to property price and interest rate movements.

Is everyone doing this?

mcguiver

I talked to my bank last week. Current property worth 250,000, wanted to trade up to 305,000.... equity of about 70,000. Bank wouldnt do it...but they offered to up my current mortgage by 20,000-30,000, use that as a deposit and give me a second mortgage for 280,000 ??
Seems silly to me, I wonder do these guys get commission on new mortgages??

Zaph0d

Are you saying they offered to let you buy another house, keep your current house and owe them 480,000-490,000 on two houses worth a total of 555,000 but they weren't happy with a mortgage of 235,000 on a single house worth 305,000?

Are you going to do take their advice?

Borzoi

mcguiver wrote:

I talked to my bank last week. Current property worth 250,000, wanted to trade up to 305,000.... equity of about 70,000. Bank wouldnt do it...but they offered to up my current mortgage by 20,000-30,000, use that as a deposit and give me a second mortgage for 280,000 ??
Seems silly to me, I wonder do these guys get commission on new mortgages??

Banks are historicly reluctant to foreclose on a family home, a problem that they wouldn't have on an investment property, that's probably why they'd be so willing to lend so much.

mcguiver

Yep Zaph0d....... it sounded wrong so I asked them to confirm it....they recon keep and rent out the first property, live in the second.

Zaph0d

Borzoi wrote:

Banks are historicly reluctant to foreclose on a family home, a problem that they wouldn't have on an investment property, that's probably why they'd be so willing to lend so much.

That makes sense. I hadn't thought of that.

this policy must be pushing up property prices...

RainyDay

This question comes up fairly frequently over on Askaboutmoney.com - see our key post on this topic. Many people get into residential property investment without really thinking it through - it's like running a small business. There will be pain associated - there will be dodgy tenants, and periods with no rental income, and maintenance & tax issues to deal with.

Many people forget about the capital gains tax issue. You have no CGT on your PPR (personal private residence). However, if the property is rented out for more than 12 months, you have a CGt liability in proportion to the period rented. So if you have lived in the house for say 8 years, and you rent it out for a further 2 years, you will have a CGT liability on 2/10ths (2 years out of 10) of the gain. This can be very significant, when compared to the option of selling the house immediately with no CGT liability.

ur mentor

You also got to watch out for costs of selling and moving. Stamp duty applies and with the present property prices rapidly gets to over 7%. also cost of selling with solicitors, auctioneers fee. Plus very few houses are perfect enoughto live in without some additional decorating!
Don't forget the rent a room scheme. Can be very useful to consider where your actual home is from a tax point of view. CGT, stamp, rent a room all need to be considered before you decide to trade up or add a new house to your portfolio!