renting out on residential mortgages?

redhead123

I called my mortgage provider today to ask what the situation would be if I rented out my 2 bed terraced house to a friend. They said it would mean an extra 1 per cent interest on top plus £100 fee. Is this the norm?

They also asked if it would be managed by an agency - I'm not too keen on this as it means an extra 60pcm which means I'll be paying to rent my house out and won't even break even. My mortgage would go up to 578 plus 60 a month on top. The most I could get would be 600pcm rental, at the top end.

My current mortgage is 4.99 which means it would go to 5 per cent. It expires in June this year and then would go to the SVR of 3.5 (if rented, 2.5 if not). So do I wait til then or just go ahead anyway as they'll effectively be paying most of it at the high rate, then re-mortgage if the interest rates change. My intention is to move in with my other half and see how that goes!

poppy10_2

redhead123 wrote: »

They said it would mean an extra 1 per cent interest on top plus £100 fee. Is this the norm?

Sounds reasonable enough to me. Some lenders won't increase the interest rate, but will charge you a higher one-off fee.

My mortgage would go up to 578 plus 60 a month on top. The most I could get would be 600pcm rental, at the top end.

I'm afraid your figures make this sound untenable. Even without the £60pcm agency fee, you only have £22/month spare. Where's the money for maintenance and upkeep of the property? What if the boiler breaks down, or the tenant does a runner leavin a couple months arrears? I know he's your friend, but things change when there is money involved. You need to have much more of a margin each month to make this worthwhile as a business venture.

My current mortgage is 4.99 which means it would go to 5 per cent. It expires in June this year and then would go to the SVR of 3.5 (if rented, 2.5 if not). So do I wait til then or just go ahead anyway as they'll effectively be paying most of it at the high rate, then re-mortgage if the interest rates change. My intention is to move in with my other half and see how that goes!

Not sure what you are saying here, can you clarify? What do you mean by "my current mortgage is 4.99 which means it would go to 5 per cent"?

redhead123

My current mortgage since I took it out is at 4.99 per cent but if I rent it out it goes up to 5 per cent (because of the 1 per cent interest they add on) so the difference in mortgage payments will go from 510 to 567!

However if I move in with my OH - we would split the bills - his mortgage is much cheaper meaning I (think) I could save a bit as I'd only be paying around 300 a month (instead of the usual 510 for my mortgage, as that would be paid by the tenant). So I'd possibly have 200 spare in case of problems with the rental...although this is all rough figures in my head so i'm not sure!

Would you advise using an agency or managing yourself? The 'full management' of properties doesn't sound like the agents do a great deal to me, but the mortgage lender may insist on it, in which case I'd have no choice.

Caz3121

redhead123 wrote: »

My current mortgage since I took it out is at 4.99 per cent but if I rent it out it goes up to 5 per cent (because of the 1 per cent interest they add on) so the difference in mortgage payments will go from 510 to 567!

if they add 1% then it will go up to 5.99%.....it goes to 5% if they add 0.01%

india2007

With regard to using an agent it probably depends on how formal you want to make the arrangement with your friend. Agents can be used in 2 ways. Firstly you can pay a one off amount for them to find you a tenant and do the necessary paperwork eg they would provide a proper contract. Secondly you can have a managed letting where you pay a percentage every month but they would maintain the propery and make sure any legal requirements are adhered to. For example landlords have to do a regular gas safety inspection which they would organise for you. May not be worth it if this is a good friend that you trust.

redhead123

Caz3121 wrote: »

if they add 1% then it will go up to 5.99%.....it goes to 5% if they add 0.01%

:rolleyes: i'm rubbish with figures!

I just had an agent round though and he quoted between 525 and 550 in which case it's just not worth it really! I asked the sale price in case I was to sell it and fell in to the trap of answer the q 'what did you pay for it' Doh! so then they tell you what you want to hear (slaps head):rolleyes: