Buy-to-let mortgage - a requirement?

rjgb

My wife and I are considering buying a flat to let out, if we can knock a fair amount off the asking price. We will not be living in the flat. We will need a small (c. £50k) mortgage.

Can anyone tell me if it is a legal requirement to take out a BTL mortgage in this situation, or is a BTL mortgage just an alternative option to a "normal" mortgage?

Thanks

silvercar

If you want to secure a mortgage on the flat that is being let then you need to apply for a BTL mortgage. To apply for a residential mortgage, with no intention of living in the property from the outset, would be fraud - obtaining money by deception.

There is no obligation to have a mortgage on the property and you could finance it in other ways eg by taking (or increasing) the mortgage you have on your residential property.

rjgb

OK, thanks!

fatpig_2

rjgb wrote: »

My wife and I are considering buying a flat to let out,

There's always one

clutton_2

you will need a hefty deposit these days - maybe up to 30% of the purchase price - and the rent will need to be at least 125% higher than the mortage payments.

rjgb

fatpig wrote: »

There's always one

Not sure I follow?

Going by the current asking price we'd have a 45% deposit and a typical rent in the area for a similar property is about 140-150% of the interest part of the mortgage.

Going by my calcs, the return would be around 7.5%, which is more than we can get if we keep money in savings. If we get the property at a price comparable to its value about 5 years ago, we also stand to make a capital gain over time. There would be no stamp duty to pay and the flat is in an area we want to move to in about two years, so can look at converting the mortgage for a standard one and move in ourselves, giving us more flexibility. Important since we'll both also be looking at changing jobs in order to move to that area. The fewer things that need sorting out at such a time, the better!

So, it seems to be a good idea to me.

What am I missing that warrants the comment "there's always one"? Are you suggesting the idea of a BTL is a bad one, full stop?

rjgb

Incidentally, I'd be interested to hear other people's views on the topic!

The flat is close to a railway station with good connections to some large towns, meaning it would be suitable for a selection of people. It's also not a new build and there's no new builds around in the area that might be going cheaper. It is a solid, 70+ year old property.

If we can get it at a good price, which would increase our deposit to close to 50%, it seems a good idea...

ad44downey

forget about Buy to Let. Don't you watch the news? You've missed the boat on that one, the bubble has long since burst.

Trollfever

As you will be running a business, don't forget to register it with HMR&C:

http://www.hmrc.gov.uk/startingup/index.htm

zzzLazyDaisy

rjgb wrote: »

Not sure I follow?


Going by my calcs, the return would be around 7.5%, which is more than we can get if we keep money in savings. ?

Don't forget that you have to pay tax on the rent, plus agent's fees (if you use one) plus maintenance and repairs. If the tenant leaves there may be a void of a few weeks until you get another tenant, during which time you will still have to pay the mortgage with no rent to cover it.

Also, the value of the property could still have some way to fall, so you could be looking at a significant capital loss.

rjgb

ad44downey wrote: »

forget about Buy to Let. Don't you watch the news? You've missed the boat on that one, the bubble has long since burst.

ad44downey - you seem to broadly assume that BTL is bad, FULL STOP. What is your reasoning?

We're not interested in jumping on some band wagon to try to blindly take advantage of rising house prices, as used to be the trend, we're simply looking to improve the yield we would get from our cash. It seems we would get a better yield from a BTL than from leaving the cash in a savings account, particularly since the BOE may knock 0.25% of the interest rate this week.

The yield I have calculated does include the deduction of tax, an amount set aside for repairs, and assumes 10-month pa occupation.

The bottom line is that the market is falling - so the buyer is now king. If we can get the property for a knocked-down price then surely, if the returns are better than cash in the bank, it is still a viable option. N'est pa?

Thank you for your constructive comments "zzzLazyDaisy" - we realise there is some risk the value of the property may fall below the figure we pay. If we can get about 10% off the asking price then hopefully we will offset much of the loss. As we can do some minor work to improve the property (new kitchen, redecoration), then we might be able to completely offset the loss.