Is this allowed?

Bandido

Hi, sorry for this newbie(ish) question about mortgages but i'm curious. Is a person allowed to take out a mortgage on a property then rent that property and use the rent to pay the mortgage? I have a feeling that this will either get extreme 'doh of course' or 'are you insane?' responses! I'm guessing if you have a low income, you probably wouldn't be granted a good mortgage in the first place, though?!

poppysarah

You mean a BTL without the official BTL mortgage?

overandout_2

You will require a Buy to Let mortgage which requires you to have a bigger deposit that a normal mortgage. But yes, if you have a Buy to Let mortgage, you can rent it out and use the rent to pay off the mortgage.

You would need to do your calculations before contemplating to be a LL - whether your rent will cover the mortgage? What's the rental yield? Will you be able to afford it if something breaks? Or your tenant does a runner?

Best to do some research first....

Bandido

Ok you've just introduced me to the term BTL which i'm guessing is 'buy to let' (sorry - im a complete novice here). When people buy to let, do they 'own' the house outright (is the house fully paid for) or are they using their tennants' money as a way of paying the mortgage?


whoops I didn't see your message - thankyou overandout, that's exactly what I mean. I didn't know if this was a legal thing to do. No of course I will not get involved until I understand everything. It was just an idea I had considered/something to aim for in the future. thankyou.

sonastin

You "own" the house as much as anyone with a mortgage can be said to own their house. You receive income from the tennant by way of their rent. If you choose to spend that income to pay your mortgage, that is your choice. You will still have to pay the mortgage, even if there is no rent coming in. If you spend the rental income on something else, you will have to find the money to pay the mortgage from somewhere else or face repossession.

Bandido

Ok and presumably for a buy to let mortgage your current income isn't the greatest deciding factor for the provider...or is it? Wouldn't lending based on 'projected income' (tennants rent) be too risky for them? I ask because my income is low (it's not awful, I could probably manage mortgage payments myself but would probably not be given a decent mortgage as a single person especially as I live in London and house prices are quite high). 3 times my income couldn't buy me a squat.

00ec25

I think you missed the significance of the 2nd post
A BTL mortgage requires a bigger deposit to be put down by you - typically this means 25% of the purchase price up front in cash , your mortgage will then be for the remaining 75%

do you have that much cash for a deposit on a London property?

also typically the mortgage company expects the rent income to be at least 125% of the monthly mortgage payment, and yes you will still need to demonstrate you have an income of your own to cover those months when there is a void

you would be better to explore the possibilty of getting a normal residental mortage (5 - 10% deposit) for a place you will live in yourself and then getting in a lodger to provide an extra income for you. However, the size of residential mortgage you can get will be based on your income only, ie not with the lodger's rent added in

G_M

Go to the library or buy a good book on renting out property. It should include sections on how to finance it. eg Tessa Shepperson's.

_Andy_

Bandido wrote: »

Hi, sorry for this newbie(ish) question about mortgages but i'm curious. Is a person allowed to take out a mortgage on a property then rent that property and use the rent to pay the mortgage? I have a feeling that this will either get extreme 'doh of course' or 'are you insane?' responses! I'm guessing if you have a low income, you probably wouldn't be granted a good mortgage in the first place, though?!

What is your own situation?
Income?
Property value?
How much deposit do you have saved up?
What is the likely rental income?
How will you cover voids etc.?

Bandido

Thankyou for the link. Yes I am soon to have around 25% of a London property in savings. I can demonstrate that I have a salary to cover a mortgage (on a monthly basis) but a London property is not likely to be around 3 times my salary but much more. The lodger idea also sounds good to me.

Andy I am really talking about a 'possible future' not a definite thing (since up until this afternoon, I didn't know for sure that it was a possibility). I am asking questions to get an idea and thankyou for the responses. I will look into this further.

DVardysShadow

Bear in mind that the rent [particularly if you allow for voids] might not cover a mortgage and maintenance fully, depending on your LTV - otherwise no one would rent, everyone would buy. This means that the Landlord chould expect to be paying out of his pocket to some extent, but over the years, the capital growth will make up for this.