When the sale's in doubt, rent it out

UK homeowners are using the equity in their houses to upsize their living space – without selling their existing home, says Christopher Browne

Gamblers, desperadoes and conmen have one thing in common – they are all big risk-takers. The average investor, however, is a percentage risk-taker. On a risk-rating of one to 10, playing the stock market would rate eight, investing in premium bonds two, and buying-to-let six or seven. But there is another, safer way to invest in bricks and mortar.

Gamblers, desperadoes and conmen have one thing in common – they are all big risk-takers. The average investor, however, is a percentage risk-taker. On a risk-rating of one to 10, playing the stock market would rate eight, investing in premium bonds two, and buying-to-let six or seven. But there is another, safer way to invest in bricks and mortar.

While 130,000 new landlords signed up their first lettings deals last year, a smaller group also arrived. They're called let-to-buyers, and these canny investors hold on to their homes while buying bigger and better ones.

Ask George and Anne-Marie Farrell. When Anne-Marie had a little girl recently, the Northampton-based couple realised they needed more living space. After scouring the area, they found a three-bedroom semi only a mile from their current address. But instead of calling in their estate agents and going online to sell their home, the Farrells contacted a local valuer. And his verdict was an exciting one. The home that the Farrells had bought from Northampton city council for £24,000 was now worth £66,000.

This figure will shave thousands off the cost of moving: they can now remortgage their old home and raise enough cash to pay the deposit and moving costs on a new one, plus they will need to move their possessions only a few roads away and do not have to endure that agonising wait for a new buyer. At the same time, in their new roles as let-to-buy landlords, the Farrells can let out their old home and make a healthy profit into the bargain.

"We got the idea to let our home instead of sell it from a local mortgage broker. There may be a small element of risk, but property has been stable-going-on-prosperous for several years and we will be using the house as an extra source of income as well as a capital asset," says George Farrell.

Surgeon Mohamed al-Hamed adopted a similar tactic. To cope with his awkward hours as an anaesthetist, he bought a two-bedroom flat as a pied-à-terre close to the hospital where he worked. The flat, which he bought three years ago for £40,000, is now worth £75,000. "Great for emergencies it may be, but I realised it would be even better as an investment." Mr al-Hamed, who lives with his wife and two children in Abington Vale, Northants, is now renting the flat out. "The rental income I get for the flat is more than double my mortgage outgoings on it, and as one of my sons is about to go to private school, it will certainly help to pay his fees."

By some nifty manoeuvring the surgeon has also remortgaged the flat and lopped £30,000 off the mortgage on his house. "I used to put my money into stocks and shares, but with an ailing UK stock market, I've hardly made any profit at all. With its high yields and capital growth, property is a far better bet for the average investor."

Let-to-buyers can also play the long game, too. Finding your ideal home can take months, even years. So why give yourself the extra pressure of a quick buy-and-sell? You may be feeling adventurous and need time to search for a coastal home or fancy the rural charm of a Sussex village. Or you may be someone who yearns for the bustle of city life or the order of a county town. Whatever your leanings, letting-to-buy has a formula for you.

This is how you do it. Instead of moving to a new home, you and your partner rent a house or flat, letting out your previous place at the same time. You now have ample searching time and the comfort of a monthly rental income to cover your former home's running costs while you do it. And if you happen to have a low mortgage, you will have some extra cash to play with.

Letting should not be taken lightly, however. Not everyone cherishes late-night calls about faulty boilers or having to remind tenants about the rent, and you will need to vet them closely to make sure they are the paying guests you want. If you have any lingering doubts, contact a lettings agency to do it all for you. It will cost you a small set-up fee, 8-10 per cent of your annual rental income for finding and signing up tenants and about 12-15 per cent for running the show.

John Socha, chairman of the Small Landlords Association, explains what is involved: "The key is to remember that your old property is no longer your home. It is an investment, which means you can't just swan in and out at your leisure. You must give your tenants at least 24 hours' written notice whenever you go there. And when you've moved your furniture out, the walls and carpets will look marked and patchy, so make sure you redecorate thoroughly before you let."

For more details, contact the Small Landlords Assocation: 0870 241 0471 or www.landlords.org.uk