How to buy a house and then rent it out - help!

ollyfarrow

I’m currently living with family. My dad is lending me 100k as a deposit so my girlfriend and I can buy our first property. We are getting married next summer and are currently saving for that huge expense.


We want to buy a 200k property using my dads 100k as a 50% deposit. His name wont be on the deeds but we will have a solicitor write up that he will be owed 50% of the equity if and when we sell the property.


We want to buy this house soon and then rent it out for a year. That way we will be buying a house while the prices and interest rates are low (relatively speaking). It will also enable us to save up for our wedding for another year but still have a house to move into once we are married.


I know that having such a large deposit will enable us to get the best mortgage deals. But because we are going to rent it out for year do we need a buy to let mortgage? If so, what happens after the year when we move in.


Can we get around this somehow?


Help please!!!

KeepYourChinUp_2

Yes you need a BTL mortgage. Then you would really need to change it back once you move in as they are more expensive due to the added risks.

However have you thought about what happens if you :
a.Cant get rid of the tenants?
b.They trash the place?
c. You cant find tenants?

You also have to consider maintenance costs and gas certificates. You also really need to do your research on being a LL.

Really there is nothing easy about being a landlord and better ways to invest the money especially as house prices are falling.

Good luck

ollyfarrow

KeepYourChinUp wrote: »

Yes you need a BTL mortgage. Then you would really need to change it back once you move in as they are more expensive due to the added risks.

However have you thought about what happens if you :
a.Cant get rid of the tenants?
b.They trash the place?
c. You cant find tenants?

You also have to consider maintenance costs and gas certificates. You also really need to do your research on being a LL.

Really there is nothing easy about being a landlord and better ways to invest the money especially as house prices are falling.

Good luck

Thanks, I will need to do a lot of thinking on the subject!

Premier_2

KeepYourChinUp wrote: »

...better ways to invest the money especially as house prices are falling.

Good luck

Not according to the Halifax.

Prices rose by 1.9% in January - don't know what that equates to in annual terms, but with BoE rates currently at just 1% p.a, almost twice that in a month ain't bad going.

http://forums.moneysavingexpert.com/showthread.html?t=1467761
http://news.bbc.co.uk/1/hi/business/7871932.stm

Premier_2

ollyfarrow wrote: »

... But because we are going to rent it out for year do we need a buy to let mortgage? If so, what happens after the year when we move in.


Can we get around this somehow?


Help please!!!

You will need a BTL mortgage to let the property out.

After a year, you can either keep the BTL mortgage and with it the right but not the obligation to let the property.
Or you could look to remortgage the property for a traditional residential mortgage, perhaps securing a more favourable rate.

mlz1413

Why buy now, is your Dad's offer on a time limit? If not IMO I'd wait to buy until nearer your wedding, around Winter 2009, this will mean you don't have to rent it out before you move in, all the buying process will over by spring and you can decorate and furnish to your liking before the last minute preparations for the wedding and then have your own home to move into - lucky you.

Doozergirl

Being a landlord is such a headache. If you don't want to move for a year then just start looking in about six months time.

Any money you save (which is a big question mark) will be eaten up with the costs of letting the property initially and then the cost of a remortgage.

poppysarah

Does your dad think his 100k is safe as houses in a house?

tintaja

Sounds like so much headache to be a landlord for a year, especially if you do not have to do that. I think the good mortgage interest rates will still be around in half a years time, and house prices might come down further.


If you are set on buying now, it may be worth checking with your mortgage provider if they will agree to changing your mortgage to residential let until you move there permanently. We are in a process of doing it right now, although we already have a mortgage and have been living in our current home since 2002. The arrangement fee for changing it to residential let was only £150, and our mortgage provider sent us a letter with their consent to let. There are some terms and conditions in the agreement - it has to be an assured shorthold tenancy, the let has to be for a fixed period of max 12 months (we can extend for further 12 months with no time limit, but always in blocks of max 12 month tenancy with no clause of conferring an option to extend the fixed period of max 12 months), confirmation from the Building Insurance Company that they are aware of the changes.
On the good side, our mortgage remains the same as it was when it was just a residential mortgage (we have a discounted tracker of -0.27% below the BoE rate, it wasn't possible to secure a BTL mortgage with such a good rate), the arrangement fee is small, there was no need for solicitors or conveyancers, and if and when we want to move back they told us to write back informing them about the fact.

sarastark86

have a look at a few of the letting/landlord threads on here and you'll get an idea of what a minefield it is. i personally wouldn't touch it with a very long stick and to do it for just year seems like a huge amount of hassle for not much return.

general consensus is that prices will continue to drop throughout 2009 - they won't suddenly jump back up again so it seems unlikely that buying now would be a better decision than buying at the end of the year, particularly if you have the issue of finding a tenant to pay the mortgage etc. is it really worth the hassle when you've got a wedding to organise??

also have you checked up about the legal stuff with your dad lending you the deposit, i don't know much about it but i think with regards to your dad's 50% equity shares some lenders will only accept 'gifted' deposits where the parent does not declare any 'interest' in the property (i.e. no equity). 'Share to Buy' specialise in joint mortgages, FTBs and stuff like that so may be worth talking to them.

If you already know all this please disregard my feeble opinion :-)

p.s. could your dad give my mum some tips on parental generosity??

Conrad

IMPORTANT:

The Solicitor acting fro the lender will need to assure them that the title is free and clear, which, is likely to mean your Dad will not be able to have a charge over the property, otherwise the lender is effectively lending 100%, meaning if prices fall they might only be able to recover £90,000 instead of £100,000.

Your Dad may draw up an independant agreement with a Solicitor unconnected to the property aquisition, but he wont be able to enforce a charge over the property without lender consent, and I can't seem them granting unfettered consent.

Furthermore your Dad will be asked to signa letter to confirm your deposit is a non refundable gift!


Best of luck