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Remortgaging for buy to let


cabby
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We are seeing our independent mortgage advisor tomorrow but thought it worth seeking the collective wisdom of the TSN massive ahead of this.

Our current property is valued at circa £400k and has equity of 280k / debt of 120k. The plan is to raise additional funds and to buy a property to let. The investment property will be circa £170k of which £50k will be from other sources meaning we need to raise our debt to £250k.

I'm sure there are a million questions I could ask but the initial ones that spring to mind are:

- we will need a buy-to-let product or will lenders allow us to borrow on the basis of a loan to value of circa 60% for our current property?

- We have been chewing over the idea of an extension that would require an additional £150k. This may or may not happen. Assuming the investment property has been bought at this stage and is generating rental of circa £600/month, would this affect the method we choose now for raising the additional debt for the rental?

Thanks in advance.

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Don't tell them it is for a buy to let and make sure the equity level stays above 40% to get the best rate. Do not switch the mortgage on your main residence to a BTL one, the rate will shoot up.

Personally, I would put down the £50k on the BTL and mortgage that property leaving your existing property out of the equation. You can explain to the advisor that you have stacks of equity in your current property and this will show on a credit check anyway. It will be good supporting information for the application.

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You wouldn't get a regular mortgage on the second property as you already have one.

The mortgage on the new property would have to be on a BTL basis but better to have it on that property and done properly as the higher rate would only be on 120k rather than the whole 250k. It would also give more flexibility if you decide to move your main residence and will be cleaner for tax deductible expenses i.e. mortgage interest payments against rental income.

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Had a good, long chat with the advisor. Nice surprise to hear that our current Nationwide mortgage which ends its fixed period in March reverts to base + 2% :grin: so no need to worry about switching that any hurry.

Re: BTL mortgage rates, these didn't seem too bad and Abbey/Santander and Virgin have some decent deals whose fees aren't unreasonable. Need to have a chat with my wife's accountant but barring that I can't see any reason why we wouldn't go for one or two BTL's over the next year.

Now to build a nice spreadsheet to help me with payment, income, tax calcs etc . . . . . .

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I've got an ISA that's up for reinvestment in a few months and am considering using it as a deposit on a small buy to let place, need to consider whether it's a good idea or not and what added extra stress/risk there will be in my life with having a place to rent, not even sure how to start looking into it or who's best to talk to. Presumably the local letting agencies to get an idea of what's in demand?

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I'm in Portsmouth so loads of uni accommodation, might be saturated all ready and not sure if I can live with the hassle of students and the sh!t and mess they leave behind. I think the ISA would give me about 25% towards a cheap in town 3 bed terrace.

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most won't lend against student lets

why do you think that?

HMO is being blacklisted by Councils, as in our area Enfield won't allow them from April- that's to do with multiple cars, noise and nusience.

From a lenders point of view BTL, is a product and the risk is the borrowers so why would they care?

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I think it has something to do with student properties being unoccupied for such long periods. The way round it is to say that it is professional let and then just let it to students if you wish. You have the mortgage at that point and there is nothing they can do about it nor will they care. As long as it is insured with a LL's insurance policy it doesn't matter.

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I've cleaned a few student lets before. Jesus they are bad. Normally it's rip the carpets up and chuck away. Once in Hatfield I had the keys to a property and went to open up, suddenly British Gas and some council bloke rushed me asking if I was the tennant and tried to get in the house!! Go the fûck away please I'm here to clean the carpets! The landlord had been totally ripped to pieces by some overseas students, who knew the system better than he did.

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It's those kind of things (plus seeing what some of my student friends did to places when I was at Uni) that put me off. I'm sure there must be bad experiences with other lettings but would hope they'd be less often. Anyway it's just an idea i'm starting to consider, i'll be on here asking more questions than Waylander if I consider taking it further :grin:

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Son has been in such a place for 18 months. When he moved in I did a check and the landlord had bought the place a year before, for £58,500.

Three lads all paying £90 per week on a 48 week rental, that's just over £13k or about 17% yield.

There unlikely to get their deposit back, which was £1080 and I think that would cover deep cleaning of a 2 up 2 down in Northampton.

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:roflmao: Re-furnish and redecorate? They don't care what condition it's in, really so you don't need to have new carpets or spangly sofas. Far cheaper maintenance than professional let, you just have to keep an eye and do regular visits in case they ignore things like a small leak on the washing machine or something stupid that can develop into something worse.

For comparison, the student properties in Canterbury are about 13% yield and pro lets where I work in South London (Oval/ Vauxhall) are about 4-6%.

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Started off with a student let (15+yrs ago). Was just outside the ideal student zone (but was the most we could afford at the time). Because it was outside the perfect zone then it was very difficult to get students to choose it ready for the next year. Which meant that it was mostly empty for ~3months of the year. So, the headline yield was high, but as has been mentioned, the up keep will be high too.

Combine with the fact that students don't keep sociable hours and will be totally clueless when it comes to boilers, etc.

That is not to say that you can't make money from them.

HMOs are up there with student lets for headline yields. Depending on turnover of tenants can be a hands on. HMOs are equally as difficult to finance.

Buildings already converted to flats can be a good source of income and possible capital gain.

Buildings that could be converted can give good income and probable capital gain.

Plain old houses to rent - these I have never understood. Yield is low. Often there are many choose from and therefore difficult to stand out from the others (when attracting tenants). Chances of capital growth are lowest.

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The accountant sat near me also mentioned that there is absolutely nowt wrong with borrowing via remortgage on your main property for a BTL.

HMRC are quite happy to allow the home mortgage interest to be off set against the rental income. The plus point being a couple of interest points cheaper than the BTL products, the minus point being that you'd have to have enough equity on the main house.

I also accept that some would want to keep the two properties separate from each other.

Thing being that if you can borrow (interest only) at £4 per £1000 per month, why would you borrow BTL at £5.75 per £1000 per month.

On £120k that's £480 v £690 odd per month!

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HMRC are quite happy to allow the home mortgage interest to be off set against the rental income. The plus point being a couple of interest points cheaper than the BTL products, the minus point being that you'd have to have enough equity on the main house.

The advisor we met with said that you are no longer able to offset home mortgage interest against a rental's income although this was possible until recently. He did add that this wasn't his area of expertise and suggested we speak with an accountant.

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In regards to the student rental returns, unfortunately even a bog standard place in Portsmouth for students would be going at 115-125k I reckon if you want it in remotely the right part of town, conversely I don't think the rent would be any higher

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