Potential Problem with letting valuation

clutton_2

Mmmmmmm !!!

realwildone

Come on. Are you that daft you don't realise a bad investment.

This site was set up to give people GOOD financial advise. Some people on here seem determined to give you advise you will regret for the rest of your life.

The surveyor has done you a favour and said this is a bad investment. Take his advise and invest somewhere else. The bank are not daft either. They will want you to put down a bigger portion of your money. Why? because they are not bothered if you lose yours but they won't risk theirs.

clutton_2

""Why? because they are not bothered if you lose yours but they won't risk theirs""

generally this is SO true ........

Tassotti

To the OP,

If you are going to let this out as an HMO, then you will need to apply to a lender that deals in HMOs (GMAC is one)

Speak to an independent broker and source the best lender.

Why have you gone for a repayment mortgage?

Go for an interest only mortgage and you might find that the figures then stack up when you have it valued.

However, I think a lot more research is needed from your part. Take in all the costs mentioned by others and also add the costs of conforming to an HMO (can run into thousands)

realwildone

Go for an interest only mortgage and you might find that the figures then stack up when you have it valued.

whats the point of renting off the bank to rent to someone else whilst risking your money. Out of all three parties YOU are the one that could lose the most.

Arch-Angel

Tassotti wrote:

Why have you gone for a repayment mortgage?

Go for an interest only mortgage and you might find that the figures then stack up when you have it valued.

Why on earth are you recommending an IO mortgage??

Let's face facts - if the OP needs to use an IO mortgage in order to make things add up in todays housing market then this has to be the clearest sign that the plan does not add up.

Also the issue of continued house price rises has to come into play. What if the market has peaked and is now due a downward correction? The OP could potentially be stuck with negative equity - a few voids (which are always possible) and the business plan goes down the plughole with virtually no change of escape!!

"Hope for the best (scenario) - plan for the worst (scenario)" - a very good motto to follow for any business...

diana11

You will need to get rental projections from other letting agents as comparables for the valuers rental valuation. The rental must be for the whole house as the lender will not take into account the rental as a HMO. If these new projections are more favourable, then the lender should take these into account. If it doesn't stack up, the lender will reduce the amount you can borrow.

Tassotti

Arch-Angel wrote:

Why on earth are you recommending an IO mortgage??

Let's face facts - if the OP needs to use an IO mortgage in order to make things add up in todays housing market then this has to be the clearest sign that the plan does not add up.

Ok, let's face facts.

I think you'll find that most BTLetters use IO mortgages

I'd be surprised if any LLs on here have repayment mortgages on their investment properties (unless bought over 10 years ago)

Property investment is not a get rich quick scheme. It is a long term investment. There is no need for a repayment mortgage, as the sale of the house will pay back the capital.

In 15 years, the value will have at least doubled from today's price.

Property investors should take any interest rate rises/price falls into account, and plan for this.

Rents need to rise at least 20% IMO

Arch-Angel

Tassotti wrote:

Ok, let's face facts.

I think you'll find that most BTLetters use IO mortgages

I'd be surprised if any LLs on here have repayment mortgages on their investment properties (unless bought over 10 years ago)

Property investment is not a get rich quick scheme. It is a long term investment. There is no need for a repayment mortgage, as the sale of the house will pay back the capital.

In 15 years, the value will have at least doubled from today's price.

Property investors should take any interest rate rises/price falls into account, and plan for this.

Rents need to rise at least 20% IMO

I'll have to take your word for it regarding the majority of LL's using IO mortgages. However, there are so many holes in your arguement that I have to resist starting a flame war (which is the last thing I want to do...)

You're right in saying that property investment is not a get rich quick scheme. However simply assuming that selling the house will pay back the capital is a major gamble.

Martin himself has been warning that house prices are capable of falling:

http://blog.moneysavingexpert.com/

Whilst he also admits that prices can continue to rise, is it reasonable to expect that house prices will continue to rise for the next x years? As a general rule, yes, house prices do rise in the fullness of time. However, for you to say "In 15 years, the value will have at least doubled from today's price." is nothing short of a guess - made worse by the fact that you still have to sell your long-term investment to realise this profit, assuming that the value will have doubled in 15 years. What if the critics are correct - that the housing market is set to see a significant correction in the next few years? Holding a BTL with an IO mortgage, trapped in negative equity, with house prices now far more affordable resulting in more rental voids....a guess I admit - but this is the worst case scenario. How would the OP - or indeed anyone who has bought BTL in the last 2 years or is planning to do so - manage in such a situation?

As for the "Rents need to rise 20% IMO" - I seem to recall that you're a LL from previous posts. All LL's are competing with each other, and those LL's who bought in 1995-1998 are much better positions to keep their rents low to avoid any voids than those who have jumped on the BTL wagon in the past 3 years. There is a wealth of rental property out there that could be rented for less than what the mortgage would be to buy it - even if the LL has an IO mortgage with no investment vessel to pay off the balance at the end of the term.

Or do you simply wish you could raise your rents by 20%??

libitina_2

Tassotti wrote:

Ok, let's face facts.


In 15 years, the value will have at least doubled from today's price.

Past performance is no guarantee of future performance. :rolleyes: