Rental income vs mortgage payments

blondie4281

We have to rent out our house from a while. This is going ok. We have spoken to our mortgage company, and are waiting for the information packs, and info to be sent through for us to sign. We have chosen a letting agent and the house is about to be advertised. Now a friend (financial advisor) has pointed out that landlords are expected to have a rental income 125% of the mortgage payments. Which ours will not be. Our mortgage company has not mentioned this. Anyone else heard of this?

We will be letting on a residential mortgage with a 1% increase on the interest rate for being allowed to let it without changing to a buy to let mortgage. For the first 2 months the mortage payments will be more than the rental income, and then our fixed rate ends and will switch to a variable rate. This will be much cheaper due the low interest rates and we will then be ok according to this 125% rule. Could this be why they have overlooked it? Of course it is dependent on what the interest rates do next.

Thrugelmir

blondie4281 wrote: »

We have to rent out our house from a while. This is going ok. We have spoken to our mortgage company, and are waiting for the information packs, and info to be sent through for us to sign. We have chosen a letting agent and the house is about to be advertised. Now a friend (financial advisor) has pointed out that landlords are expected to have a rental income 125% of the mortgage payments. Which ours will not be. Our mortgage company has not mentioned this. Anyone else heard of this?

We will be letting on a residential mortgage with a 1% increase on the interest rate for being allowed to let it without changing to a buy to let mortgage. For the first 2 months the mortage payments will be more than the rental income, and then our fixed rate ends and will switch to a variable rate. This will be much cheaper due the low interest rates and we will then be ok according to this 125% rule. Could this be why they have overlooked it? Of course it is dependent on what the interest rates do next.

Did you ask your mortgage company about the requirements for letting? Or just made a telephone enquiry?

Letting property whilst profitable isn't as easy as it seems.

Remember to notify the HMRC that you are letting. Saves problems in the future.

mlz1413

I think this is a calculation on B2L mortgages, as you have a mortgage in place and want permission to rent then the lenders own rules will be applied to your situation.

Read the info packs carefully when you get them as well as meeting critrea you may need different insurance cover too.

If you do decide to become a LL its well worth joining an association so that you know your responsibilities are and what to look for in a LA.

p00hsticks

mlz1413 wrote: »

I think this is a calculation on B2L mortgages, as you have a mortgage in place and want permission to rent then the lenders own rules will be applied to your situation.

Yes, I agree - Lenders use rental income to determine how much they are prepared to loan on a new Buy To Let mortgage, rather than owners income as they do for a residential mortgage. However, as you already havea mortgage in place and the lender has agreed with what you are doing I don't see that this applies in your case

DawnW

I think it depends more on the T&C of the individual mortgage than whether it is a residential or B2L one. We had to take a B2L mortgage on our (only) house which we have to rent out because we have to live (or rather OH does) in tied accommodation linked to his job. However, the lending was on the basis of our incomes, not prospective rent, which was not even asked about. Initially, the rent did not cover the mortgage. It does so now because we have massively overpaid. However, we make very little 'profit' on it considering the amount of hassle involved, and would not do it through choice.

princeofpounds

It is up to the individual lender. 125% is a normal requirement but certainly not universal, especially if there is a lot of equity in the house. It's also a sensible requirement for the person doing the letting, if the enterprise is expected to be self-supporting.

It will make it harder to remortgage with other lenders if you do not meet this criteria and your current mortgage becomes uncompetitive.

Mrs_Bumble

You are not switching to a buy to let mortgage are you?

Just requesting consent to let and the lender has said will only increase the current residential rate?

If that is the case then there is need to worry about the 125% rental calculation as that only comes in to play if you later look for a buy to let mortgage.

How long are you going to be letting the property out?

If this is just a temporary thing then I wouldn't worry about it but if you are going to be letting the property out consistently then you will need to bear in mind the 125% equation for future buy to let mortgages purposes.

Don't forget that you will need to let HMRC know that you are letting the property and so keep records of your income and expenditure etc.

blondie4281

Thrugelmir wrote: »

Did you ask your mortgage company about the requirements for letting? Or just made a telephone enquiry?

Letting property whilst profitable isn't as easy as it seems.

Remember to notify the HMRC that you are letting. Saves problems in the future.

Thank you everyone for your replies. What is HMRC??

I did talk through letting out our property with our mortgage company, but it was over the telephone. They were looking at our specific details - not just in theory.

This is not a profit making exercise for us at all. We are quite expecting to be out of pocket. We are renting out our little 2 bed terrace which we have outgrown, in order to rent a larger house now that our family has expanded. Our 2 bed has subsidence and we cannot sell until a) the court case against the couple who sold it to us ends and b) 2 years pass since the house was most recently underpinned (now been done twice).

Mrs_Bumble

HMRC - Her Majestys Revenue and Customs

Although you are not intending to make a profit it is still best to keep accounts and submit your loss.

blondie4281

Mrs_Bumble wrote: »

HMRC - Her Majestys Revenue and Customs

Although you are not intending to make a profit it is still best to keep accounts and submit your loss.

Oh thank you - complete baby brain. That's what comes of being pregnant - sorry. I have an accountant who does my tax returns so I will ensure he is aware of the situation when we do rent out the house!

Mrs_Bumble

lol! I know that feeling! Good luck with the house and the baby