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Buying a second home: rental income v deposit

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Hi
I have been unable to sell my current property due to the market, and am now keen to rent it out and purchase a new property as i am now really desparate to move location due to family health problems. I have £9000 remaining on my current mortgage and £12000 in savings. I could clear my current mortgage and have £3000 left over in cash to put towards my new property.
I could rent out my current property for 425pcm. I am looking to buy a new property in the region of £120,000.

I am just unsure how this works with lenders - am i better to hold onto my cash to use as a deposit for the new property? Or clear my current mortgage?

Any advice welcome as i really have no idea whether lenders prefer me to have cash for a deposit or would they see a fully paid off property with a rental income of 425pcm as the same value as a cash deposit.

Thanks
Stella

Comments

  • Cannon_Fodder
    Cannon_Fodder Posts: 3,980 Forumite
    Having a mortgage-free property avoids the need for lender permission to rent out - and the risk of an increase in interest rate or conversion to a buy-to-let basis.

    However, you would need more than £3k to get the second house. Some 95% deals out there, but not many, and mostly for FTBs.

    So, you'd likely need 10% deposit.

    How about renting yourself, effectively being paid for by the renter of yours...at least for a while, until you finish the mortgage/build up a fresh deposit?

    Health is more important than extracting the maximum profit.
  • Thank you so much for your reply, it has made me think - yes i am keen to move soon to help my mother as she is becoming quite infirm now.

    Profit is not all the matters to me, but i dont have a large income and live on my own, so although i had considered renting out my property and renting another one - i was just worried that i would miss out on the opportunity to get a good deal on purchasing a new flat (the prices have dropped by around 15% in recent months and it seems like an unmissable time to buy). I worry that if i dont buy another property now in my mothers area - i may not be able to afford one if the prices go up in 6 months to a year. it might also be difficult for me to save for a deposit when renting as i would be moving to a higher rent area where i would be likely to pay 550pcm.

    Still .....its something i might need to think about as i cant get hold of a 10% deposit AND pay off my current mortgage.
  • Cannon_Fodder
    Cannon_Fodder Posts: 3,980 Forumite
    By 'new flat' do you mean NEW flat?

    If you are considering a brand new flat, see if they will offer a "gifted" deposit. The Developers' way of pretending the price hasn't been knocked down...

    Or a part exchange, perhaps?
  • No, it would not be a new-build property.
  • Folks,

    I'm afraid we don't have quite so little left on our property, £45,000. We too are compelled to move but have not been able to secure a buyer.

    We've thought about renting out our house, which we believe would fetch a rental price that would comfortably cover the mortgage. But this leaves us short on a deposit on a new home however. Are their any sympathetic lenders who would look favourably on a couple renting out a home for which we have about £70,000 equity? Our current lender actually told us their usual 10% deposit (we could do this at a push) would double to 20% (not unless pigs fly) if we have a second home being rented out!:mad:
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