what to do?????

andyj01_2

hello there
im a newbie but not ! ive used this site befor but couldnt get my log in details anyway
i hope this is in the right section im trying to find out what is the best option for a family member who wants to buy a property to rent out as a back up for there pension and also to help a family member on the ladder they are retired with no mortgage on the property worth in the region of 250k im not sure if they should go for a equity release, loan against the house ,re mortgage im not sure could someone give some sound advise
many thanks
andy:)

ViolaLass

a loan against the house IS a mortgage and probably the best option.

andyj01_2

hello ViolaLass
i see what you mean its just the loan companies at the moment are very tight also being retired aswell isnt that stacked against them would they use the equity in the property as a gurantee ??

Thrugelmir

Would the proposed rental property be bought with a BTL mortgage or outright for cash? Some more information would be useful.

To release equity, downsizing is another option. Then using the released equity to invest for income\capital drawdown. Might as well enjoy life!

andyj01_2

thanks for the reply
the parents are both retired the dont want to down size and i was not sure weather a btl would loan as there is no income other than pensions the only thing they have is equity in there property would that be enough to lead for a btl i keep telling them to downsize a life but not possible the most rental i feel on the property would be around 550 with a purchase price of 100k so there is enough equity in the main equity release loans seem scary if the property was bought cash then thats the only way to release the money is through equity release wouldnt it??

dunstonh

Equity release would not exactly be a ideal way to buy a property to rent out.

1 - the interest on equity release is added to the debt and compounded. The effect of compounding could see the cost of borrowing accelerate faster than then rental income.
2 - equity release is more expensive than a buy to let mortgage typically. So, the cost of borrowing may be more than the rental income even to begin with. The rental yield is 6.6% but the cost of borrowing for equity release is likely to be in excess of 7%. That is also without fees.

andyj01_2

ok then equity release is not the way forward as i thought so it seems to me that btl mortgages is the way forward or even re mortgage will this be a problem without a income comming in based on pension or will lenders use the equity in the main property as gurantee as there will be the income from the rent to pay the mortgage payments and the equity in the property far out ways what would be needed to but the property yep im a novice in the finance world!

dunstonh

Mortgage buy to lets tend to require around 25% deposit and need around 120% of the mortgage cost (using higher rates than current) as rental income. They can also be a bit fussy about who the tenant is (family members can often be excluded). A mortgage adviser will know more about that than me. So, i will let one of them confirm the sort of criteria in place nowadays.

andyj01_2

thankyou for that its a mine field out there on which way to turn and whats the best info for people

Accountant_Kerry

from their perspective with having to get equity out of their resisential property mainly and the rest on a btl mortgage as it look slike they have no deposit i can't see them making a profit on the rental with repairs, void periods etc. doesn't sound like a good idea to me as they give themselves a mortgage BTL and loan or some sort for the deposit which they will haev to pay regadless of rental income, seems a pointless risk.

getmore4less

andyj01 wrote: »

hello there
im a newbie but not ! ive used this site befor but couldnt get my log in details anyway
i hope this is in the right section im trying to find out what is the best option for a family member who wants to buy a property to rent out as a back up for there pension and also to help a family member on the ladder they are retired with no mortgage on the property worth in the region of 250k im not sure if they should go for a equity release, loan against the house ,re mortgage im not sure could someone give some sound advise
many thanks
andy:)

You just can't do what you are proposing.

If there is no capital to buy the rental property then you have to borrow the money that costs so it will not provide any sensible income.

To help a family member on the ladder they need to gift MONEY if they don't have it they need to borrow it, taking on debt seems a bit silly if they need to also boost the pension.

The only way to get the equity out of the house without debt is to sell it.