BTL effects on own mortgage

jackieblue

Jo_anne wrote:

Hi PoorDave,

I have a BTL approx 40 miles from where I live, as the house prices were lower and the rents higher (and demand for rental property higher) than closer to home.

I've always assumed that if house prices were lower then so were rents and it just doesn't seem to work out that way. I would really like to do a BTL, but in my area, the ratio of house price to rent just doesn't seem that great. Not sure what influences the ratio, but do you know if there is any published information anywhere on which parts of the country offer the best ratios - or even what affects the ratio. As I say the way I see it if house prices are low, then you'd expect rents to be equally low, but when I hear of rates of 7 or 8% yield, then I'd love to know where. UK_Landlord wasn't impressed with 5% but that's about as good as it gets locally to me (Fleet in Hants). Any info would be much appreciated.

Jo_anne_2

Hi jackieblue,

Published info on BTL hotspots is around but I guess it becomes out of date fairly quickly. I read the BTL Bible by Ajay Ahuja which was helpful as a guide, but I did my own research talking to other landlords and letting agents before deciding where to buy. It seems to be there are some areas in the north which offer better ratios. You also need to consider the local demand and whether your property is likely to have void periods, as these can affect your returns significantly, as well as the rental value.

jackieblue

Jo_anne,
Thanks for that. I'll look in the library as I'd not heard of Ajay Ahuja. If you don't mind me asking what is the kind of yield in the area of Northants that you have bought and on what kind of property ? Understand fully if you don't want to say. THanks again.

Lizzy

If the ratio does not work out you have to put down a bigger deposit. The valuer comes out and he or she gives an idea of the rental income that you can get. Although you also put your figure down as well.

The house I am buying at the moment is 130k with only 2 bedrooms so the rental income will not cover the mortgage so my deposit is higher. When I get this house we will convert it into 5 student letting rooms at £65 per week for each room plus bills.

So we have 65 x 52 = 3380 x 5 =16900 then divide by 12 and you get £1408.33 per month.

Not quite sure how much the mortgage is at the moment because it is just going through but at interest only its about £460 and take away the deposit money off another property which is about £200 and there is a taxable profit of £748.33 per month.

You really need to know your area even if its not nearby.
My houses are by chester university in falling out of bed distance..........
I did grow up around there and my dad still lives there, I am only 5 miles away.

I don't rent to families so its hard to say about rent for them. Of course the rent would have to be lower than if the family were to buy a place of their own or they would have done that (well I thinks thats what they would do).

There are lots of options really, whatever mortgage you get don't tie yourself in for too long so you can alway move to a better rate or borrow more money against the house with no penalty etc.

Its quite exciting when you first dip your toe in the water, it gets a bit addictive.

Lizzy

jackieblue

Lizzie,
My chin is on the floor. Around here (and I've double triple checked) we'd get 1 possibly 2 tiny beds and this would go for £590-£650 at the most whereas you are looking at nearer £1500 per month. This is the kind of information that's massively of interest to me just to know it can be done. How are you able to turn 2 beds into 5 student lets. Have you thought about doing this for a fee ?

Lizzy

For a family that house would rent for £550 acording to the valuer. It is a problem because the valuer takes it as it stands with only 2 beds even if you say its going to be 5 he will take no notice.

Hubby is a joiner manufacturer so knows everyone who can do the work if he can't. The initial outlay can be high with these alterations but as you can see the income in a few months covers it.

Also take into consideration the time from buying to renting. Hopefully we will get this by May, but then it will be empty until September. In my case the other houses will cover the mortgage, if its your first house this will not be the case you will have to pay it yourself. So do put that into your budget.

Are you near a University ?

Lizzy

HelpWhereIcan

Lizzy wrote:

For a family that house would rent for £550 acording to the valuer. It is a problem because the valuer takes it as it stands with only 2 beds even if you say its going to be 5 he will take no notice.

One of the reasons for this is that the lenders will, more often than not, ask the surveyor to value the property on this basis (ie let to a family/couple on a single ast).

I am sure that you will have had the appropriate information, but I think it will be useful for others to know that not all buy to let lenders will lend on a property that is intended for multiple occupancy/students. Where a lender does accept multiple occupancy, they will normally want there to be a single AST and no locks on individual bedrooms and for there to be no more than one kitchen in the premises. I am aware of one landlord who lost their mortgage offer because the lender became aware that the property was to be let to students.

Obviously it is all still possible, but I think it useful for people to be aware that not every lender will agree to this kind of tenancy. Having said that, I am sure that there will be many properties that are let to students that the lender thinks are let to families etc.

Lizzy

Yes you are quite right. If you want to rent to students it is best to use a broker as there are not many that will rent to students.
Even so if the mortgage company know its for students as in my case they still only take it as it stands 2 beds and no more even if they know it will be. I guess thats because they can't be sure that the alterations will be done.

Lizz

PoorDave

Jo_anne wrote:

Hi PoorDave,

I have a BTL approx 40 miles from where I live, as the house prices were lower and the rents higher (and demand for rental property higher) than closer to home. So far, it has worked out well and the property let really quickly. I knew the area as I grew up there, so it wasn't unknown territory, so to speak. Where are you considering buying? My BTL is in Northants.

My further north idea is near Peterboro, where you can get a 1 bed for £55k, but possibly rent it out for £300+ pcm.

In my own town, the same type of thing is £100k, but rents for £450pcm. The decision is whether to go for a new area where the deposit is lower, or stick to what i know first time out. Needing a bigger deposit would put back the timescale. Tricky.

UK_Landlord_2

Not sure what influences the ratio

not certain myself, but one thing i notice is that property in high capital growth areas, i.e. wealthy parts of town has much less in terms of earnings from rental yield. i assume it is expected that you will make your money from the CG. whereas in social housing areas the figures for cg are much less and so ther rental yileds are much higher.

i am buying a property at the moment in an area i consider to between the two above secnarios, i.e. good growth decent rental yield, and i'll give you the figures i am working on:

purchase 195K, financed by 85%ltv mortgage @4.79% int only tracker 2yrs, arr fee £595

deposit from me = £29,250
advance form bank = £165,750

to do the proeprty up we have estimated/quotes for £18k, with contigency we are assuming 25k, total spend from us of: £54,250 (financed by drawdown on another btl)

i know the value of the finshed property will be £250k+, i think it should be 265-275, but as banks are often undervaluing at the monemt i am safeguarding by calculating on 250k. we have agreement from bank to do a revaluation so assuming we get what we want the figure look like this:

our 15% equity is now £ 37,500
mortgage is £ 212,500

this mean we would get an advence from the bank of £46750, as we have spent 54,250 we are basically leaving our profit from the deal in the property as equity and taking all our money back bar £7,500

so a property that will now rent for £17,160 per annum with mortgage payments annually of £10,178.75 has only cost us £7,500 for an annual gross profit of £6,981

sure we have other costs, purchase, val fees, hmo licence etc, but to me it still a very attractive deal, %yield if i was to buy done up would still stack up to a respectable: 6.8%

btw, the property will be let to 6 students @55pppw

hope that helps any budding btl investors out there!