BTL Expert advice needed!!

Quest123 · 5 October 2017 at 9:40AM

Hey, it’s my first time posting on this forum as my situation is a unique and complicated one.

I’m looking to purchase a house worth around £100,00 with a buy-to-let mortgage (BTL) with a loan-to-value (LTV) of 75%. I plan to find a property in Birmingham, where the prices are more affordable. My main goal is to hold an investment which I can sell on later, where rent covers interest only mortgage & other expenses (full management from an estate agent etc).

THIS IS WHERE IT GETS (MORE) DIFFICULT:

I’m currently eating £16,000 a year, however this is tax free as it’s a PhD scholarship. Thus £16k is net.
I’m 23, I’m living with my parents, not a home owner, do not pay rent and have no loans or credit debt. So will be able to afford mortgage repayments without a tennant etc.

Majority, if not all, lenders won’t lend on my salary. I previously was taking £30k a year and after tax was only £400 more than my current salary. I’m going to also teach during my PhD which pays an additional £400/500 per month - equating the same if not more due to not paying tax.

Does anyone have any advice on where I may find a lender, or the best way to go about investing the £25k deposit?

Thanks for your help in advance.

Q

saajan_12 · 5 October 2017 at 9:58AM

Most BTL lenders will require

1. aged over 25

2. already a homeowner (otherwise you may be really intending to live there or may end up living there if your free accommodation may not last long)

3. 25% deposit (your 25k cash has to pay for solicitors fees, surveys, mortgage fees.. so left with 20-22k deposit)

4. rent 125-145% of mortgage payments. On a 75k morgage at the higher BTL interest rate 3.5%, your monthly payments are £220. Does a 100k property command an expected market rent of atleast £275-£325? Some lenders will only consider avg rent assuming letting to a family not as a HMO / group of sharers.

So a BTL mortgage will be difficult. Go to a mortgage broker to see if any lenders are more flexible but I think you'll struggle with a few of the standard criteria, which means a smaller pool of lenders and interest rates to choose from, ie. higher rates.

I'd look for other ways of investing the money.

Quest123 · 5 October 2017 at 10:06AM

Hey Saajan_12

Thanks for your response.

I've had a few consultations with banks and neither of them have stressed being over 25 or a homeowner, the monthly salary seems to be the main stumbling block.

Personally, I can pay the £220 monthly payments myself, however for argument sake I anticipate monthly rent will be more in the region of £500 - £800. Nonetheless I see your point about lenders considering avg rent.

I will give a broker a go as it's worth a shot!

Thanks for your advice, I really appreciate it.

Comms69 · 5 October 2017 at 10:13AM

Quest123 wrote: »

Hey, it’s my first time posting on this forum as my situation is a unique and complicated one.

I’m looking to purchase a house worth around £100,00 with a buy-to-let mortgage (BTL) with a loan-to-value (LTV) of 75%. I plan to find a property in Birmingham, where the prices are more affordable. - Is this a studio?! My main goal is to hold an investment which I can sell on later, where rent covers interest only mortgage & other expenses (full management from an estate agent etc). - And that magic number is?

THIS IS WHERE IT GETS (MORE) DIFFICULT:

I’m currently eating £16,000 a year, however this is tax free as it’s a PhD scholarship. Thus £16k is net. - So not enough for you to live on AND support a second property...
I’m 23, I’m living with my parents, not a home owner - so not eligible for 99% of BTL products , do not pay rent and have no loans or credit debt. - no credit history either So will be able to afford mortgage repayments without a tennant etc.

Majority, if not all, lenders won’t lend on my salary. I previously was taking £30k a year and after tax was only £400 more than my current salary. - only? I’m going to also teach during my PhD which pays an additional £400/500 per month - equating the same if not more due to not paying tax.

Does anyone have any advice on where I may find a lender, or the best way to go about investing the £25k deposit?

Thanks for your help in advance.

Q

Not in a property.

Comms69 · 5 October 2017 at 10:14AM

Quest123 wrote: »

Hey Saajan_12

Thanks for your response.

I've had a few consultations with banks and neither of them have stressed being over 25 or a homeowner, the monthly salary seems to be the main stumbling block.

Personally, I can pay the £220 monthly payments myself, however for argument sake I anticipate monthly rent will be more in the region of £500 - £800. Nonetheless I see your point about lenders considering avg rent.

I will give a broker a go as it's worth a shot!

Thanks for your advice, I really appreciate it.

Sorry your going to buy a property with an 9.6% yield? I doubt that very much.

saajan_12 · 5 October 2017 at 10:58AM

Quest123 wrote: »

I’m looking to purchase a house worth around £100,00

Quest123 wrote: »

I anticipate monthly rent will be more in the region of £500 - £800.

Are you sure? That doesn't sound right..
So you're looking for a property with enough bedrooms and good enough location to support the high rent, but at a low enough sale price, which suggests it would have some repair issues or something wrong.. making voids likely or needing money you don't have to renovate..

Quest123 wrote: »

I've had a few consultations with banks and neither of them have stressed being over 25 or a homeowner, the monthly salary seems to be the main stumbling block.

Please do say what lenders you're looking at.. are you sure they're working on BTL not residential basis and know your full circumstances? Depending on who you spoke to and how thorough the discussion was, this may have been assumed as most people buying a BTL have their own home and are older!

mrginge · 5 October 2017 at 11:03AM

Comms69 wrote: »

Sorry your going to buy a property with an 9.6% yield? I doubt that very much.

A 9.6% yield straight off the shelf that hasn’t already been snapped up by a local experienced landlord.

Apparently.

steampowered · 5 October 2017 at 11:21AM

Op, why do you want to be a BTL landlord?

Your numbers don't sound correct.

Even if your numbers were right, your budget would be extremely tight. And you do not have the financial resources to sort out any issues with the property or deal with void periods.

You still need to pay the mortgage if the tenants stop paying the rent - so you need savings or insurance to deal with that. And if the property needs repairs you have to pay for that too.

Furthermore, won't you want to buy a property of your own in a few years time? This will be more difficult if you have to sell the BTL property first. And as a former property owner you won't be eligible for government assistance (such as through the help-to-buy scheme or help to buy ISA).

It all sounds like an extremely high risk investment without the prospect of a high return to go with it. For now I think you are much better off putting your money into a savings account or investing it into stocks & shares. Consider investing into a help to buy ISA.

kingstreet · 5 October 2017 at 12:45PM

Any lender considering a BTL for a non-homeowner is going to have one eye on you buying somewhere to live and using the BTL rules because you can't afford it as a residential.

So what they do is they treat it as a residential and if you can afford it that way, they know you are being honest as you would obviously get a better deal buying with a residential mortgage than going the BTL route.

In your case, you aren't going to get this because you can't demonstrate residential affordability.

Quest123 · 5 October 2017 at 1:13PM

The numbers I had a look at sit around this:

1. BTL Mortgage repayments: £120/month for 24 months before moving to £450/month, APRC 4.4%
2. Monthly rent for city centre properties: £500-700, based on Rightmove.
3. Estate agent fees for full management are around 10-15% of monthly rent: £98/month (based on £650pcm rent)
4. Based on points 1&2 this would be a significantly smaller yield than 9.8%.
5. I would thus be able to save my own salary on the side of this to account for absent tenants, repairs etc. I'm currently able to save £400/month.

aneary · 5 October 2017 at 1:22PM

I've had a quick look on rightmove for a property that is under 100k excluding auctions, shared ownership and cash buyers only this is the only flat I can see.

http://www.rightmove.co.uk/property-for-sale/property-47882198.html

You won't get 650pcm for that.

In addition it's been up for sale for 3 years so there is something wrong with it.

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BTL Expert advice needed!!

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