Normally, you have to sell the current property if you need the money to buy a new one. But there are occasions when it makes practical or financial sense to keep the old home.
If you rent your old house out rather than sell it, you could end up over time with a valuable asset that generates a regular income.
What do you think will happen to property prices?
This is the critical question. If property prices are rising, then clearly there is a massive financial advantage to building up a property portfolio – you get the capital gains on more than one property. But if property prices are falling, then you old home will go down in value, and certainly in the short term you would probably be better off selling it. However, in the long term property prices invariably rise (along with economic growth and incomes), and so if you are planning to keep your old home for many years, then you shouldn’t worry about a short term dip in prices.
When does renting out the old home make sense?
– If you are just moving temporarily, perhaps for work reasons, and you want to keep open the option of moving back to your old house
– If it is a good rental property, and you are confident that property prices are going to rise – and you have enough money that you do not have to sell your old one to fund buying the new home
Will your mortgage company let you?
You need to check the small print of your mortgage – most mortgages include a clause that does not let you rent out your house, while some let you do it for up to a year, and others have clauses that allow you to rent it out if you are moving for a limited period for work and intend to move back. If you do have to change mortgage, you will probably have to change to a (usually higher interest) buy-to-let mortgage which will probably entail early repayment fees, valuation survey fees, and new mortgage arrangement fees.
How can you finance two properties?
Clearly, you should only consider doing this if you are financially secure, and financially literate – if you are already stretched, and not confident dealing with financial matters, then you could end up really regretting it. You are clearly more likely to be able to buy a new property while keeping your old one if you have major equity in your existing property, and a sufficient income to easily finance the mortgage on your new property. If you need to raise the deposit for the new property, you can then do that by increasing the mortgage on your existing home, the payments for which should be covered by the rental income. You will then need to take out a second residential mortgage on your new home, the payments for which would be covered by your normal work income. You will then have two mortgages, one on each property, covered by the rental income and your normal income.
Will you be able to pay the mortgages?
If you move out but still have a mortgage on your old property (whether you are buying or renting a new place), you obviously need to work out whether you will be able to keep up with the monthly repayments on that mortgage – in addition to the mortgage on your new home. Clearly, you want (and the mortgage lender is likely to insist) that the rental income is enough to cover the mortgage interest payments.