Can we rent current property and purchase new property?

gcfzd

Good Morning,

I am new to this website and was hoping someone could give me some advise.
We are currently trying to sell our house after finishing refurbishments.
However I would very much like to rent the property out as I have been given figures of around £1100 to £1200 pcm.
We have found another property which we want to purchase and renovate but this property is pushing us financially, so I was orginally looking at selling our current property to release the equity then using this to help purchase and renovate.

Ideally I would like to keep and rent the current property.
I have spoken to my mortgage company and with my current income we cannot afford both properties with them and they will not take into account the rental value.

Can anyone advise me if there is a way keeping our present house and be able to afford to purchase the new one?

Many Thanks.

phlash

First piece of advice is that you need to do alot more research! You need to read, read and read some more about letting your property, legal responsibilities, costs, regulations etc.

Second thing, you need 'consent to let' from your current lender. It sounds as though that you will not get it from your introduction above. In that event you would need to obtain a BTL mortgage and incur the associated costs.

I will give you a clue as to whether renting out is worth it (financially) - Need the house value, current size of mortgage, interest rate paid. Some high level indicators will give you a good clue as to whether it is worth it.

On the face of it, it sounds as though you may be biting off more than you can chew.

gcfzd

thank you for that.
house is value @ £290k, current mortgage is £175k @ 6.99%.
i believe i could achieve £1200 pcm renting out.

TrickyDicky

gcfzd wrote: »

thank you for that.
house is value @ £290k, current mortgage is £175k @ 6.99%.
i believe i could achieve £1200 pcm renting out.

Could you afford to replace all the white goods if they broke down in 1 month (if you supplied them)

Could you afford it if you tenants decide not to pay and it takes you 6 months to kick them out!

getmore4less

£1200pm on £290k 5% gross yield, not that good.


How big is your deposit for the new place?
What LTV and salary multiple would you be borrowing at.

phlash

gcfzd wrote: »

thank you for that.
house is value @ £290k, current mortgage is £175k @ 6.99%.
i believe i could achieve £1200 pcm renting out.

Personally, I would sell.

The figures do not stack up at that mortgage rate.

You have 60% LTV, so you should be able to get a BTL mortgage @ approx 5% (after a quick look online). However fees will be 1.5-2.5% of mortgage size, typically. £2.6k-4.4k.

When calculating income, you should base it on 11 months of income out of 12 to account for voids. So that is £13,200 income pa on you top estimate of £1,200 per month.

An interest only BTL mortgage @ 5% for £175k is £8,750 interest pa. Management fees @ 10% of income = £1,320.
Maintenance costs of 5% pa, so that's £660.
Buildings insurance @ £100 per month = £1,200
Accountant = £300
Tenant find (those hidden fees from lettings agents) = £300
Other associated costs ~2% = £300
Time and stress = Your own valuation!

Total costs £12,830.

Cash profit = £370.

Now, that's based on an interest only mortgage. If you were on a 25 year repayment mortgage, repayments would be £1,035 per month. New cash cost per annum would be £16,500.

So you would need to supplement the lettings business with £3,300 pa or £275 of your earned income per month. (It's important to note this is not a 'loss' per say, as you are paying off capital from the mortgage, but it is a real cash cost and pull on your cash flow.)

I would say steer clear until your achieving £1,600 per month.

My BTL produces 9.4% yield (voids included), whereas yours is realistically 4.5% yield (voids included).