Andrew from Vista Financial

Sell or Rent UK Property

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    Quite a hot topic lately this one!

     

    Lots of members with their UK home up for sale at the moment and not having a lot of joy. Comments about dropping the price sometimes by thousands (no pound sign on my keyboard) lol.

     

    I would suggest those of you that really don't want to hang around anymore and just want to be in Oz to seriously consider renting.

     

    For those that do not know and that may have equity in their property, an option is to take some extra borrowing on your property known as a further advance/loan, speak to your Bank fairly easy to do.

     

    I did this just before we came out whilst I was working. You can generally borrow up to about 95% Loan to Value of property (may be a HPLF insurance fee if over 90%)

     

    If you want to buy in Oz then the reason for borrowing this money would simply be to say that it is for a second property.

     

    You could then use this money towards funding a home here and take a mortgage if need be. (providing of course you have an income to support the mortgage here)

     

    The rental market in the UK is extremely buoyant and you try to bring the UK mortgage payments in line with the rental that you are receiving by changing things like the term of the mortgage or repayment method (ie interest only or capital & interest).

     

    I use a management property to find my tenant when I did this and we signed to a 6 month contract, after 6 months the tenant wished to sign another 12 month contract and as she was a very good tenant fortunately, we now do not use the management agency and have saved 100 pounds a month.

     

    Of course this has its risks:

     

    Further price decreases in the housing market, bad tenants etc.

     

    However over the longer term house prices have always gone upwards with extremely good growth and you could save yourself thousands even if you have to maybe pay for a decorator once in a while to tidy up the house etc..

     

    Also you would have the growth on two properties, good investment.

     

    Anyway

     

    Probably lots of differing opinions on this but thought it might help those that weren't aware this could be done,

     

    Thanks

     

    Andy

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    Guest Linda Bedford

    Hi, my name is Linda and we are moving over to Adelaide in the very near future with my husband's job, our visa should take another 6 weeks so hopefully it will be July.

     

    We are having the very familiar problem of not being able to sell our house over here in Southampton, we have reduced the price by £20,000 and only had 1 viewing in the last 2 weeks at the reduced price!!

     

    We are now thinking about the rental option, however, my husband really does not want to do this as he wants to free up our equity in this property to enable us to be able to buy the house we want over in Adelaide. At the moment we feel if we do follow this option, we have 2 options, one as suggested to get a further advance on our current mortgage to bring over some capital, the other is to transfer over the remaining profit we make each month from our rental income after paying the current mortgage and agents fees, which could be as much as £500. Does anyone know how we can do this, and what are the tax implications for us over there - would appreciate any help at all from any experts or anyone who has done this.

     

    Thanks

     

    Linda

    :v_SPIN:

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    Guest The Hadleys

    Hi Andrew

     

    Yes you are right it is a very hot topic. We have had our house on the market 7 weeks loads of viewings but its offers. I had a serious chat with a mortgage advisor from the company I work for, he did some figures for me and it looks like we will be renting. Rental fees will more than cover our mortgage and may even bring in a small income (not sure of the tax implicatons). In an ideal world we be better off to sell as we have £260K equity in our home. I think it would make more sense to wait for the market to recover and for the dollar to rise and then try to sell again, the downside of this is that the property in Adelaide in rising so its a no win situation.

     

    I think we are going to wait until July, if no offer is on the table then we will look at putting the house in the hands of a letting agent and move to Adelaide maybe October.

     

    Dawn

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    Hi Andrew. We are in the same boat. got visas but cant sell house. We have also heard that a bit of a credit crisis is going on over there too. What deposit do you normally require over there and how long would you need to be working for before being able to obtain a mortgage? can you use the equity of the UK property in financing in oz to get better rates? if so, how do you prove the value of your uk property?

    Carole and Andrew

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    Well my OH wanted to sell, like someone else mentioned to free up the equity in our property. We are also well aware that prices are going down here and up in Adelaide and we're already thinking about the difference in potential profits. So as I said he wanted to sell sooner rather than later. However I wanted to rent our house out first basically because we hadn't been to Oz before and didn't know anyone out there. I wasn't being negative just trying to cover all bases in case things didn't work out for us at least we'd have our house to come back to. I wanted to keep a foot on the property ladder until we knew for sure which way we were going. Having 3 kids I felt it was important having that security. So we got onto the Building Society who very readily agreed to give us an advance on our mortgage. We needed to realise some money to fund the move and get our new lives started. However when the figures for the repayments came through at the weekend, my jaw nearly hit the floor. They were absolutely ridiculous. No wonder they were keen to lend us the money. Unfortunately we've turned it down as we just can't afford it so we've come full circle and decided to sell afterall. A concern that I did have though was if we rented our house here and therefore had to rent in Oz, if we did decide it wasn't for us and wanted to come back, how could we afford to? How could we raise the £10k (shipping & flights) needed to get back? At least if we buy in Oz we'll have something to sell which I must admit makes me happier than the thought of, yes we've got our house in England for security but can't actually afford to make the move back.

     

    Our visas aren't through yet and we won't probably put our house on the market until they are but I'm hopeful that we'll be able to sell ok as we're in a quiet street next to a University and is very popular as there always seems to be a shortage in student accommodation!

     

    It's all still very much in the air, as you can tell, and we'll probably change our minds again before we're finished. It's knowing what to do for the best.

     

     

    Nicky

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    Hi

     

    Just in relation to the replies to this post.

     

    If you are making a profit from your rental then you have some options!

     

    If you do not need the money to supplement your income in Australia then reduce the term of your mortgage to bring the monthly repayments in line with the rental income, you will pay off your mortgage quicker.

     

    If you do need the income here in Australia then this will help with your Australian mortgage/rent payments, greatly in some cases, mentions of 500 pounds profit. However the tax implications if you are a permanent resident will be that the profit is taxed at marginal rates in Australia. Using someone like HiFX to transfer the money will more than likely give you a better exchange rate than the Banks. (pity about the rate at the moment).

     

    Deposit required for mortgage to buy in Oz?

     

    You can borrow up to 100% in some cases, however any borrowing over 80% has an LMI attached Lenders Mortgage Insurance, initial fee’s are also quite high! It is not likely you will be able to use your equity in the UK as a security here. With regards to how long you need to be in a job, that depends on things like what you do now and used to do in the UK, probationary periods etc.

     

    Why not consider renting for a while in Australia!!!

     

    Mention of Adelaide house prices increasing rapidly. Not the case at the moment, I would not worry too much in the short term about this. They have had an amazing boom in the last five years and have certainly slowed down lately!!

     

    Renting is about half the price of what the mortgage payments would be and the owner pays for council, strata and sometimes water rates. Put away what you are saving by renting and with the money you have brought over you can earn around 8% in savings accounts here at the moment!!

     

     

     

    Andy

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    Guest The Hadleys

    Hi Andrew

     

    I have just been in to see a letting agent about putting my property to rent. Its such an easy process he gave me some figures, if i want my property managed the cost is just 10% per month in our case will be £75.00 per month, the rental will definately cover mortgage and more, and what a brill idea of yours to reduced the term. We have decided this is the way for us so hopefully we will in Adelaide by October. Yipee

     

    Andrew you are a star.

     

    Dawn

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    Renting is about half the price of what the mortgage payments would be and the owner pays for council, strata and sometimes water rates. Put away what you are saving by renting and with the money you have brought over you can earn around 8% in savings accounts here at the moment!!

     

     

     

    Andy

     

     

    Is that right then that renting in Oz is cheaper than mortgage repayments? I just assumed that it was the same as here, the other way round.

     

     

     

    If you do not need the money to supplement your income in Australia then reduce the term of your mortgage to bring the monthly repayments in line with the rental income, you will pay off your mortgage quicker and have no tax implications on the rental income as you are making no profit.

     

     

    That sounds a good idea, assuming you're not going to be let down by tennants. What happens if there's a break in tennancy? Surely that means you've got hefty payments to find?

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    Guest thelincolns

    What a useful post Andrew!! :v_SPIN:

    Got to show DH-yesterday we had a serious chat on whether it was worth considering the emigration thing at all-and I felt I almost had a change of heart because of the financial aspect. It is such bad, bad timing- if you don't do the right things you could literally lose everything you worked hard for!!

    Maybe you instilled some hope we may still make it happen...

     

    MANY, MANY thanks :notworthy:

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    Guest sazzle

    hi,

     

    just read your last mail, and noticed that you work in the mortgage industry. The wife and myself have started the visa process to come to adelaide and if you could spare a few minutes to give a brief over view what to expect, it would be much appreciated. I am a senior mortgage and insurance broker and she is a senior sales negotiator in an estate agent. Just really wanted to know how the industry is out there at the moment, what if any extra qualifications will we need to proceed in our chosen industries, and if possible any contacts you may have that might be worth meeting with when we arrive in adelaide to discuss possible job opportunities.

     

    Any help would be great.

     

    martyn

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    Guest rockpool crab

    This is a brilliant post and has my brain whirring. Wish you could bookmark posts!..lol..must remember to print this one out for my "big" folder of oz..lol.

     

    Extend the term of mortage, release "some" equity and rent out the property. I love it..lets see what OH thinks when we discuss in morning....or afternoon in his case..considering he's been at footie in Dundee :jiggy:

     

    Catch you later

     

    Carol Ann

     

    PS..the down side is..will you always remember you have a home to come back to and not make a go of it :-( mmmmmmmmmmmmmmm

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    Hi

     

    Glad to have been able to give a few ideas.

     

    Yes renting is definitely cheaper out here especially as mortgage rates are around 9%ish!!!

     

     

     

    Also the Australian government encourage people to invest via very advantageous tax treatment on investment borrowings. Lots of Australians have investment properties and they are not to bothered with the loss (known as negative gearing) as they can claim a tax deduction for some of the loss!!

     

     

    Breaks in tenancy can happen, that is a risk but they will generally have to give a months notice and you should have a months rent paid up front, therefore you have a month to find new tenants!!

     

    Also you can take out some type of insurance for certain instances, talk to Management agency (not sure how good it is), maybe leave a couple of thousand in your English Bank account as extra back up (which you would still have for your mortgage direct debits to go out and rent to come in)

     

     

     

     

    Just to mention also, I will be running regular Seminars on things like Australian Mortgages, UK Pension transfers etc here in Adelaide for PIA members, so if anyone feels that this would be useful let me know and also give me an idea of when you may be arriving and I will try to fit you in to one near to that time.

     

     

     

    Sazzle I have PM’d you!

     

    Andy

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    Hi Andrew. Thanks for all the advice. Not sure about the reduced term bit as you cant offset the repayment of capital element against tax, just the interest element. Do you know whether ex pats would be entitled to the personal allowance, about £5k when resident in ox?

    Thanks Carole

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    Hi Andrew. Thanks for all the advice. Not sure about the reduced term bit as you cant offset the repayment of capital element against tax, just the interest element. Do you know whether ex pats would be entitled to the personal allowance, about £5k when resident in ox?

    Thanks Carole

     

     

     

    Hi Carole

     

    Yes you are right, it is only the interest and certain other expenses that can be offset, buildings insurance, management fees etc. Still reducing the term would pay the mortgage off quicker with some tax implications. I have mine on interest only so none there!

     

    Not sure about whether you can claim the personal allowance as a PR, I am on a 495 so am entitled to it, I thought not but not 100%, in any case if you are a PR you have to declare your worldwide income in Oz! So may not make any difference anyway as one of them will want a slice of the pie.

     

    Should probably say as well when I referred to renting be around half the cost of mortgage payments of course it depends on the size of the deposit.

     

    Thought these figures might help a few of you in the Rent or Buy in Australia scenario!!

     

    Rental income is around $400 - $450 ish weekly and will be cheaper the further from the city you go!

     

    Based on a property of $450,000 ish in City

     

    Mortgage Costs to purchase ie Stamp duty etc. $22,500 ish

     

    2Yr Fixed @ 8.89% 30 yr term borrowing:

     

    $405,000(90% LVR) $743.00 a week + $6000 mortgage insurance as over 80%.

     

    $360,000 (80% LVR) $660.000 weekly

     

    $250,000 (55%ish) $460.00 weekly.

     

    So the break even point is around 50% deposit.

     

    Should point out that my posts are just general advice and not personal advice.

     

     

    Andy

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    Hi Andy. Once again, thanks for the summary. Our heads have been spinning this week end, but it is good to know all this information.

     

    either way it seems expensive to live in oz. High interest rates, high stamp duty on houses, mortgage stamp duty (read this somewhere), mortgage insurance if deposit less than 20%. Really hope our house sells, otherwise we will be renting forever. I think some of these programs we have watched have been very mis leading.

     

    At least its still considered a better place to live dispite all the financial trappings.

     

    Carole n Andrew:wacko::notworthy:

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    Guest texas

    This is what we had decided to do, and wait until the market settles down. We can get around £800 a month for our home and luckily we have savings to put a deposit down on a house in Oz.

     

    However, Andy, do you know if they have any lending restrictions ie age related, as we want to borrow over as long a period as possible to keep the costs down (ie 30 yrs) until we decide what to do with our house in the UK and as we are in our late 40's would this be a problem? A relative over in Oz who has been in business for 30 yrs suggested getting a 'line of credit'. What are the salary multiples in Oz for mortgages?

     

    Any info would be appreciated.

     

    Thanks

     

    Caz

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    This is what we had decided to do, and wait until the market settles down. We can get around £800 a month for our home and luckily we have savings to put a deposit down on a house in Oz.

     

    However, Andy, do you know if they have any lending restrictions ie age related, as we want to borrow over as long a period as possible to keep the costs down (ie 30 yrs) until we decide what to do with our house in the UK and as we are in our late 40's would this be a problem? A relative over in Oz who has been in business for 30 yrs suggested getting a 'line of credit'. What are the salary multiples in Oz for mortgages?

     

    Any info would be appreciated.

     

    Thanks

     

    Caz

     

     

    Hi Caz

    Generally 30 years is the max term (although some will go longer), your age should be fine as there are no conditions on when you have to stop working and the borrower has to understand that it is there responsibility to continue to pay the mortgage.

    I realise you are referring to just doing this initially to keep the payments down, so yes this is certainly something that is possible. Also interest only here is possible which is obviously another way to keep the payments down initially.

    A line of credit is quite a popular home loan arrangement here, it is similar to the old Virgin One Account (now Nawest One account). This allows overpayments, lump sum payments etc to be made at any time and also a redraw facility up to the agreed limit at the rate of the home loan.

    The rate though is generally higher than say a fixed rate, so this has to be weighed up when deciding which way to go. Especially with rates going the way they are/have been here!

    In terms of salary multiples, it does not work here the way it works in the UK. Lots of factors are used. Generally it is calculated on an affordability method and security method, i.e deposit being paid, your income against outgoings and living costs, including how many live in the household etc. other debts and they also factor in a buffer as well in case of interest rate rises.

    Hope this helps

    Regards

    Andy

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    Guest texas

    Thanks Andy,

     

    Just have to hope the interest rates don't go up too much more!!!! Also gonna wait and see what happens with the exchange rate, might have to wait a couple of years now anyway for that to go back up!!! Have you been in Adelaide long? I used to work for an Independent Financial Adviser many years ago in the UK - both partners in the company are very successful now. I wasn't a Consultant, although I passed my financial planning exams, I was their PA. It was a fun job but many moons ago!!! Once I had my son I went to work in the school office, much more convenient!!!!

     

    We are really excited about coming out and scared!!! Still, letting the house gives us a cushion and we can always come back, although I don't think many people do?

     

    Thanks again for your help Andy, I really do appreciate it.

     

    Regards,

     

    Carole

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    Guest danlee101

    We are in a similar situation to some

     

    House on the market - no viewings since April

    Very little equity so none worth taking out

    Going the rental route

     

    Rent, less interest only mortage, management fee and insurance leaves us a shortfall of about 5k/yr (GBP) (lets say $11,000 loss)

     

    In Adelaide I'll be in the 40% tax bracket circa ($100k) so given $11k loss, I should be able to receive some offset around $4k so in effect, real loss is only $7k/yr.

     

    Hope that makes sense and I got it right.

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    Hey Danlee

     

    yer, that's pretty much the gist of it. Offsetting losses is a very common strategy used by lots of property investors, known as negative gearing. They would generally use the tax rebate to then clear any bad debt as it were, (ie. debt that is not tax deductible, their personal home loan for example).

     

    P.s you must be a permanent resident to be able to claim a tax deduction against the losses, it will not apply if you are on a temp visa.

     

    Regards

     

    Andy

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    Guest danlee101
    Hey Danlee

     

    yer, that's pretty much the gist of it. Offsetting losses is a very common strategy used by lots of property investors, known as negative gearing. They would generally use the tax rebate to then clear any bad debt as it were, (ie. debt that is not tax deductible, their personal home loan for example).

     

    P.s you must be a permanent resident to be able to claim a tax deduction against the losses, it will not apply if you are on a temp visa.

     

    Regards

     

    Andy

     

    I'm a Citizen returning home after 7 1/2yrs abroad and will be a resident for tax purposes in Oz so all should be cool if I have to go that route

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    Guest Jim Scott

    I would like to draw the attention of anyone reading this thread to the following forum/website;

     

    http://www.taxationweb.co.uk/forum/discuss.php?id=1165

     

    It's a bit dated, but does talk about the issue of remortgaging a UK home when it is to be rented out, and using that money to buy another home to live in, as well as some of the tax implications. I doubt that anything has changed tax wise since this debate occurred.

     

    My point is, beware of the risks and tax implications before embarking on this route:-

     

    As I understand it, the rent you receive is fully taxable income. It is only the interest on your mortgage which is deductable. i.e.

    - principal repayments are not deductable

    - interest on an equity release loan designed to raise cash for a deposit on a home either in UK or OZ, may not be deductable.

    - there are of course other tax benefits/deductions for maintenance and other expenses, but:

     

    The UK rules appear to be similar to OZ in relation to this issue.

     

    I recommend you speak to a professional tax adviser if you are in any doubt and be certain of the true "cashflow" implications. I'd hate to hear of anyone getting hit with a massive tax bill they were not expecting.

     

    In particular, do the numbers to check and see if you may be better to sell, and bring your equity tax free (even if less than you might have hoped) to end up with a smaller home loan in OZ as compared to having a small? original loan on your UK property that is tax deductable + an equity release loan that is not + the loan on the new OZ property.

     

    Note: I do not offer UK tax advice (or OZ tax advice for that matter!)

     

    If you do the numbers and you can still afford to keep the UK property - great. Best wishes all.

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