Buying a new house - but want to rent my existing one as an investment..

dcellwood

I am looking to move house and was thinking of holding on to my existing one as a rental investment - I could attract enough rental income to cover the mortgage on it and a bit of profit.

My home value is £160k and I have around £90k equity in it (55%).

Can I do this? How does it work? How do I work out what a lender would borrow me on a second property?

Any advice would be helpful.

Senior_Paper_Monitor

The cost of the mortgage on the current property will almost certainly rise when you change it to 'buy to let' and you will probably need the rent to be proven as 125% of the mortgage cost.

Other than that there are a choice of 'buy to let deals' - be aware that some of the best are 'broker only' deals these days.

Frankly, sounds an all round fairly easy all round deal to set up - but needs to evaluate all options (porting and replacement option depending on ERC situation, best tax efficiency etc)

Thrugelmir

The BTL mortgage at best will be 75% LTV. So how are you going to fund the purchase of your new home?

calebdylan

you need to specify the area where house is located cause the rents may differ and the rent you are going to give for the new house so that we can judge the profit that you will earn

opinions4u

House price appreciation in the last decade was driven by the easy availability of mortgage funds.

Those funds have dried up and it would be a brave banker that runs the growth model for his bank on the back of wholesale funding.

In other words, the primary factor for house price increases has been taken out of the equation.

You should think long and hard before getting involved in buy-to-let. Ask yourself "what will make house prices increase?". The world has changed and the answer "they always have done" looks shaky to me.

- you have to maintain the debt, regardless of the value of the property
- tenants come and go, you may have no income at times
- tenants can be a right royal pain
- interest rates can go up
- property values can fall
- for many, BTL has been their only form of investment. Very much putting all their eggs in one basket
- there are legal responsibilities for being a landlord
- a particular locality can deteriorate

Gorgeous_George

I enjoy being a landlord but I bought a doer-upper at a good price. I'd like to echo o4u's wise words.

You'll need 25% deposit (£40K) for the BTL mortgage which will leave you with £50K towards the deposit for your new home (less admin costs etc.). I like the look of Britannia's 10-year fixed rate BTL mortgage but cheaper money is available on shorter fixes/tracker/SVR mortgages. Possibly less than 3%.

Your rent usually needs to cover 125% of the BTL mortgage interest. If it doesn't, I wouldn't be considering BTL anyway so this restriction is a wise one.

Annual rent/House price = yield. I woudn't bother if the yield was much less than 10% unless the property was likely to rise in value (i.e., you buy it at below market value). As yours is already in your hands this wouldn't be the case. Certainly no value in a yield of less than 7% other than the fact that it is likely to rise year on year.

The mortgage is just one part of the equation. You will incur other costs. Not all tenants will look after your property. Some will fail to pay the rent. Be prepared.

Good luck.

GG

devils_advocate

Lets work on the assumption that house prices will fall 20% in the next 2 years. (OK, I don't know what will happen either, but its a brave person who will give you a guarantee that they won't!)

So putting the assumption in the back of your mind, there's a wonderful investment out there with me. Give me your £90k, and I'll give you a gross return of 10% a year for the next 2 years. At the end of the 2 years, I'll return your initial investment less 20%. Simple, isn't it?

getmore4less

devils_advocate wrote: »

Lets work on the assumption that house prices will fall 20% in the next 2 years. (OK, I don't know what will happen either, but its a brave person who will give you a guarantee that they won't!)

So putting the assumption in the back of your mind, there's a wonderful investment out there with me. Give me your £90k, and I'll give you a gross return of 10% a year for the next 2 years. At the end of the 2 years, I'll return your initial investment less 20%. Simple, isn't it?

Thats only applicable if you churn the property.

Make the rental business work(10%+ gross yield) and house prices don't matter long term.

devils_advocate

getmore4less wrote: »

Thats only applicable if you churn the property.

Make the rental business work(10%+ gross yield) and house prices don't matter long term.

Sorry but I have to disagree with you. Houses are illiquid enough as an investment at the best of times, and with any investment you have to have an escape route to turn it into cash if necessary.

What many people forget is that whilst house prices have always risen over time, so has inflation. Depending upon which point in the cycles you wish to measure from, you may find that there has been a reduction in house prices in real terms. Certainly, those buying at a peak and selling in a trough will notice it.

People's priorities change, and they are also affected by unforeseen circumstances. You cant ignore capital values, and cash flow does not equal income.

Thrugelmir

getmore4less wrote: »

Thats only applicable if you churn the property.

Make the rental business work(10%+ gross yield) and house prices don't matter long term.

Profit comes from a combination of both.

While initially the yield is 10%. Over time you need wage inflation (higher disposable income) for tenants to pay higher rents.

With no capital gain it diminishes the attraction of property investment.

getmore4less

Thrugelmir wrote: »

Profit comes from a combination of both.

While initially the yield is 10%. Over time you need wage inflation (higher disposable income) for tenants to pay higher rents.

With no capital gain it diminishes the attraction of property investment.

You expect inflationary gains but they are just break even,

Long term excess(over inflation) HPI is not sustainable so your business should not be dependant on it if you are into rental.