Re-mortgage home for buy to let - which type?

LukeT

Hi,

I am currently an owner occupier with no mortgage. However, I am looking to release some equity by re-mortgaging in order to buy a buy-to-let.

Repayments for a repayment mortgage (particularly if it's fixed) would almost certainly not be covered by the rental income were interest rates to rise by more than 1-2%.

I am thinking about taking out an interest-only, and then using all of the spare rental income to start to pay-off the mortgage. This would give me the flexibility to pay only interest when I need some extra income to fund refurbishments, etc. Or to pay off larger mortgage chunks if I come into some extra money.

I accept that there would be the risk that the mortgage wasn't paid-off at the end of the term. And this would effect the return were we to sell the property.

Does this sound like a reasonable approach?

dimbo61

Offset mortgage would be the way to go I think
You can get a 3/5 year fixed rate deal and pay all rental money into the offset account until you need to pay the TAX man !

dimbo61

Not saying this is a good idea at all at the moment!
See how many flats/houses are for rent where you want to buy!!
Buy to Let mortgages are expensive with 2/3% fees and high rates and being a landlord is not all plain sailing.
You also need at least 25% equity in property unless you use your home to buy outright with a mortgage on your property

JonnyBravo

dimbo61 wrote: »

Not saying this is a good idea at all at the moment!
See how many flats/houses are for rent where you want to buy!!
Buy to Let mortgages are expensive with 2/3% fees and high rates and being a landlord is not all plain sailing.
You also need at least 25% equity in property unless you use your home to buy outright with a mortgage on your property

But they won't use a BTL mortgage (so won't have those "2/3% fees and high rates"). They will use an ordinary OO mortgage secured on the house they live in if I'm reading it right.

There is nothing wrong with this, I do it.

As to whether it is wise where the rent sounds to be a little too low for the property is another matter. I'd prefer it to cover a repayment mortgage but that is somehwat subjective depending on term and rate applied.

As for the taxman you don't need to pay him if the rent is only covering the interest..... granted you should still fill out a form, but you'll have nothing to pay.

LukeT

JonnyBravo wrote: »

But they won't use a BTL mortgage (so won't have those "2/3% fees and high rates"). They will use an ordinary OO mortgage secured on the house they live in if I'm reading it right.

There is nothing wrong with this, I do it.

As to whether it is wise where the rent sounds to be a little too low for the property is another matter. I'd prefer it to cover a repayment mortgage but that is somehwat subjective depending on term and rate applied.

As for the taxman you don't need to pay him if the rent is only covering the interest..... granted you should still fill out a form, but you'll have nothing to pay.

Thanks for the replies. You are correct JB, we are looking to mortgage our current home, so won't need a BTL mortgage.

D61, I will look into an offset mortgage, but worried that it would take too long to build up enough savings to provide a decent offset.

Witham

If you have enough equity why re-mortgage you current home (any purpose equity release) to a max LTV of say 70% to ge the best rates, then use this to fund the BTL in full. Then there is no issue with the BTL as far as the mortgage co is concerned, therefore it's not a BTL mortgage, just an equity release on your current property - nice and simple (and cheap). This avoids all the issues with proving the value of your new property, rental values etc.