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  • FIRST POST
    • Quest123
    • By Quest123 5th Oct 17, 9:40 AM
    • 4Posts
    • 0Thanks
    Quest123
    BTL Expert advice needed!!
    • #1
    • 5th Oct 17, 9:40 AM
    BTL Expert advice needed!! 5th Oct 17 at 9:40 AM
    Hey, itís my first time posting on this forum as my situation is a unique and complicated one.

    Iím 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:

    Iím currently eating £16,000 a year, however this is tax free as itís a PhD scholarship. Thus £16k is net.
    Iím 23, Iím 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 wonít lend on my salary. I previously was taking £30k a year and after tax was only £400 more than my current salary. Iím 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
Page 1
    • saajan_12
    • By saajan_12 5th Oct 17, 9:58 AM
    • 833 Posts
    • 547 Thanks
    saajan_12
    • #2
    • 5th Oct 17, 9:58 AM
    • #2
    • 5th Oct 17, 9:58 AM
    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
    • By Quest123 5th Oct 17, 10:06 AM
    • 4 Posts
    • 0 Thanks
    Quest123
    • #3
    • 5th Oct 17, 10:06 AM
    • #3
    • 5th Oct 17, 10:06 AM
    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
    • By Comms69 5th Oct 17, 10:13 AM
    • 438 Posts
    • 303 Thanks
    Comms69
    • #4
    • 5th Oct 17, 10:13 AM
    • #4
    • 5th Oct 17, 10:13 AM
    Hey, itís my first time posting on this forum as my situation is a unique and complicated one.

    Iím 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:

    Iím currently eating £16,000 a year, however this is tax free as itís a PhD scholarship. Thus £16k is net. - So not enough for you to live on AND support a second property...
    Iím 23, Iím 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 wonít lend on my salary. I previously was taking £30k a year and after tax was only £400 more than my current salary. - only? Iím 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
    Originally posted by Quest123


    Not in a property.
    • Comms69
    • By Comms69 5th Oct 17, 10:14 AM
    • 438 Posts
    • 303 Thanks
    Comms69
    • #5
    • 5th Oct 17, 10:14 AM
    • #5
    • 5th Oct 17, 10:14 AM
    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.
    Originally posted by Quest123


    Sorry your going to buy a property with an 9.6% yield? I doubt that very much.
    • saajan_12
    • By saajan_12 5th Oct 17, 10:58 AM
    • 833 Posts
    • 547 Thanks
    saajan_12
    • #6
    • 5th Oct 17, 10:58 AM
    • #6
    • 5th Oct 17, 10:58 AM
    I’m looking to purchase a house worth around £100,00
    Originally posted by Quest123
    I anticipate monthly rent will be more in the region of £500 - £800.
    Originally posted by Quest123
    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..

    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.
    Originally posted by Quest123
    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!
    Last edited by saajan_12; 09-10-2017 at 10:14 AM.
    • mrginge
    • By mrginge 5th Oct 17, 11:03 AM
    • 4,195 Posts
    • 7,449 Thanks
    mrginge
    • #7
    • 5th Oct 17, 11:03 AM
    • #7
    • 5th Oct 17, 11:03 AM
    Sorry your going to buy a property with an 9.6% yield? I doubt that very much.
    Originally posted by Comms69
    A 9.6% yield straight off the shelf that hasn’t already been snapped up by a local experienced landlord.

    Apparently.
    • steampowered
    • By steampowered 5th Oct 17, 11:21 AM
    • 1,787 Posts
    • 1,692 Thanks
    steampowered
    • #8
    • 5th Oct 17, 11:21 AM
    • #8
    • 5th Oct 17, 11:21 AM
    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.
    Last edited by steampowered; 05-10-2017 at 11:27 AM.
    • kingstreet
    • By kingstreet 5th Oct 17, 12:45 PM
    • 32,055 Posts
    • 17,156 Thanks
    kingstreet
    • #9
    • 5th Oct 17, 12:45 PM
    • #9
    • 5th Oct 17, 12:45 PM
    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.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
    • Quest123
    • By Quest123 5th Oct 17, 1:13 PM
    • 4 Posts
    • 0 Thanks
    Quest123
    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
    • By aneary 5th Oct 17, 1:22 PM
    • 595 Posts
    • 446 Thanks
    aneary
    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.
    • Quest123
    • By Quest123 5th Oct 17, 1:23 PM
    • 4 Posts
    • 0 Thanks
    Quest123
    Op, why do you want to be a BTL landlord?

    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). - The idea would be to sell the property and then to purchase my own, i'm not time pressured. Secondly, the help-to-buy schemes aren't ideal they have their cons, you're essentially paying rent and a mortgage simultaneously. Help to buy ISA only provide a max additional £3k, which won't drastically change my ability to purchase my own place.

    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. I'm in the early stages of looking where to invest and in my opinion housing would be a better investment long term, i'm just getting to grips with the feasibility and financial implications of it all
    Originally posted by steampowered
    Just trying to work out whether it's a good idea or not essentially.
    • Comms69
    • By Comms69 5th Oct 17, 1:23 PM
    • 438 Posts
    • 303 Thanks
    Comms69
    on top of which you seem to have forgotten landlord insurance, budgeting for repairs and for legal costs.
    • Crashy Time
    • By Crashy Time 5th Oct 17, 1:29 PM
    • 5,000 Posts
    • 2,156 Thanks
    Crashy Time
    http://www.section24.org.uk/landlord-tax/
    • 00ec25
    • By 00ec25 5th Oct 17, 1:36 PM
    • 5,007 Posts
    • 4,350 Thanks
    00ec25
    as ever Crashytime posts the usual misleading article without even considering its relevance to the OP

    OP earns 16k, which is, more over, tax free, thus he has a very long way to go before the higher rate tax band applies and the purpose of that article kicks in. All the while he is a zero or basic rate taxpayer that article is wholly misleading since section 24 has no impact at all on them

    for the record....
    https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies
    Last edited by 00ec25; 05-10-2017 at 1:40 PM.
    • amanda p
    • By amanda p 5th Oct 17, 3:05 PM
    • 24 Posts
    • 93 Thanks
    amanda p
    I think also one problem you may encounter is a lot of mortgage providers won't lend on a house under a certain threshold especially for a first time buyer/ landlord. My son has just bought a BTL in Manchester, his first purchase. Slightly different as he lives and works in HK, so it was the only way to get a house in the UK, his place of birth, as no one if you are an ex pat will give you a residential mortgage, as you are not a resident. His broker got him a mortgage through Swinton who are based in Guernsey, one of the criteria was the value of the house had to be over £140,00 for them to lend 75%. He also had to pay a very high mortgage fee, presumably as he is out of the UK. The affordability luckily for him isn't a problem but you do need to have money put aside for repairs. As a landlord it is not something that can be left. If the boiler breaks and needs replacing it has to be done, washing machine breaks, oven breaks has to be replaced straight away. There are a lot of LL checks that have to be carried out before the tenants are in, none of them very expensive, but a lot of them so the ££ racks up. Then LL insurance, furnish the property or not.Will you employ a letting agent, another 10% off the rent each month. The list is endless. His rental is £750 a month in a very popular area of Manchester and it is a house. I would be surprised if you would get that level of rent for a one bedroomed flat in Birmingham, whatever Rightmove may say. Before you go ahead do your homework well.Budget for the worst scenario and hope for the best.
    • Cakeguts
    • By Cakeguts 5th Oct 17, 3:42 PM
    • 2,851 Posts
    • 3,901 Thanks
    Cakeguts
    If you get a non paying tenant you have to be able to pay the mortgage for at least 6 months without getting any rent. You also have to be able to carry out repairs without getting any rent. It takes several months to evict a tenant who has stopped paying rent which is why you have to be able to pay the mortgage without getting any rent. You have said that you wouldn't be able to pay the mortgage without getting any rent therefore this investment is too high risk for you.
    • parkrunner
    • By parkrunner 5th Oct 17, 4:38 PM
    • 710 Posts
    • 1,057 Thanks
    parkrunner

    THIS IS WHERE IT GETS (MORE) DIFFICULT:

    Iím currently eating £16,000 a year, however this is tax free as itís a PhD scholarship. Thus £16k is net.
    Originally posted by Quest123
    Try Weight Watchers.......................
    • FBaby
    • By FBaby 5th Oct 17, 5:06 PM
    • 15,937 Posts
    • 39,726 Thanks
    FBaby
    Lenders might consider someone who isn't home owner IF they earn over £50K. They might consider someone who is earning £25K If they are a home owner.

    Even then, you will only find a handful of lenders if that.

    You seem not to meet any of the requirements, on this basis, I can't see how you would get anywhere.

    You also seem to ignore the costs associated with being a LL when things go wrong, and they do go wrong! As already pointed out, if you go for a property that is in need of refurbishment because that's all you can afford, then be prepared for high repair costs, much above what you would expect as a home owner as you can chose to put up with some needs of repair that tenants will consider essential for the rent they are paying.
    • kingstreet
    • By kingstreet 5th Oct 17, 5:10 PM
    • 32,055 Posts
    • 17,156 Thanks
    kingstreet
    Lenders might consider someone who isn't home owner IF they earn over £50K. They might consider someone who is earning £25K If they are a home owner.

    Even then, you will only find a handful of lenders if that.
    Originally posted by FBaby
    £50k?

    No. They test the proposition and see if the applicant could afford it as a residential because then they are not likely to be gaming the system because they will lose out by doing so...

    You are right on the handful of lenders willing to lend to non-homeowners. If you have small hands.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
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