let to buy (HELP)

cormack66

I am looking at let to buy mortgage on the property I currently have, so that I can buy a new property, but I am not sure on weather to do this. I have been given some figures off an estate agent and finance company and it looks as thought I could afford to this, but my current property would be on interest only. Is this something I should be seriously looking at doing as an investment for the future?

Any help or advice would be appreciated

BitterAndTwisted

I think what you are referring to is a Buy-To-Let mortgage. It just depends on whether you can afford to pay the mortgages on both properties should the need arise. I certainly wouldn't countenance it in the current economic climate, especially anything involving an interest-only mortgage. What do you proopse to use to pay off the capital borrowed?

Also, what equity do you have on the current property as this would affect how much you could raise IF you can find a lender.

Could you afford both mortgages if interest-rates shot up to double-figures like they did when we last had a Conservative government?

G_M

have you done your calculations:

Realistic rental income based on 10 months per year to allow for voids, tenant defaults etc

Less

Mortgage repayments on a BTL mortgage (or LTB - mortgage is the same)
insurance on a rental (more than residential)
All other overheads/running costs (see a good book)
Letting agency fees (you sound like a new LL so advisable till you get experience)
Tax liability on rental income

Don't just rely on an agent saying 'you can afford it' - they have a vested interest as they want your business! Do your own sums and treat it as a business.

If you got the tenant from hell and had 6 months with no rental income followed by repair costs, do you have reserve funds to cover this?

geoffky

what is the highest rate for interest rates you have worked out you can afford because rates will rise and when they do who knows where they will end up..

goldbyron

A LTB is different from a BTL - I think it involves using the equity on your existing property to buy a new one with the mortgage company using a particular rental yield percentage. I looked into this myself as apparently it is a growing trend for those unable to sell and want to move on...

cormack66

Thanks for your information Guys, this is what I have so far…!!!

Re-mortgage current property

On a let-to-buy on current I could take a total of £112,500 out of the property.

On a 2 year Tracker mortgage this would cost £430 per month on interest only. The rent I could expect you to receive on this property would be around £625 per month.

After paying off the outstanding mortgage this would leave you with £94,500 to use as a deposit for the new property.

New property purchase at £219,000

Using the £94,500 deposit raised from current property I would need to borrow an additional £124,500 to purchase this property.

This mortgage would cost £650 per month on a 20 year repayment mortgage

I would be in a position if I had to, to be able to pay for the 2 mortgages

Any further advice guys would be much appreciated

geoffky

whats the highest rate you have factored in as this could be your downfall

Hammyman

BitterAndTwisted wrote: »

I think what you are referring to is a Buy-To-Let mortgage.

No they are not. It is called a LET TO BUY. You are remortgaging the current property in order to let it out and release equity to use as a deposit for a new house you intend to live in.

To the OP - I've just completed all of this process last week. The lender I used was The Mortgage Works. They wanted a rental value of 130% of the INTEREST ONLY portion of the mortgage. Even if you're getting a repayment mortgage, it is only the interest portion they're interested in. So for example, if the monthly interest was £200, they'd want a rental value of at least £260pcm.

ALSO IMPORTANT: Some LTB companies take into account your income whereas some are only interested in the rental income. TMW were one that only took into account the rental income.

Typical rates are around 4.5% and there's some real hefty fees as well - £2000 is not uncommon. I would count on being able to meet the payments with the rent with interest rates at 7%. That should give you a bit of leeway.