Advice on Buy-to-Let Mortgage

DavB93

Sorry if this is a regular question but I'm totally in the dark regarding Buy-to-Let Mortgage.
Me and my wife are considering on buying a flat near us to Buy-to-Let and just wondering what kind of figures I'd been looking at(We've already got a mortgage for our house).
The flat is on the market at £68,000 and that's all I know really and not really sure what else is needed.

herbiesjp

DavB93 wrote:

Sorry if this is a regular question but I'm totally in the dark regarding Buy-to-Let Mortgage.
Me and my wife are considering on buying a flat near us to Buy-to-Let and just wondering what kind of figures I'd been looking at(We've already got a mortgage for our house).
The flat is on the market at £68,000 and that's all I know really and not really sure what else is needed.

Do you have a 15% deposit?

What is the expected rental income from the property?

A_Nice_Englishman

Yes it is a regular question and her is my usual response (writing as an ex-landlord)

Starting a property rental business is like starting up any other business. You need a business plan.

Do void periods, bad debts, repairs, redecoration, legal fees,insurance, agents fees, costs of evicting bad tenants, rises in interest rates to, say, 8% and possible falls in property values figure in your business plan?

Are you familiar with the 50 Acts of Parliament and 70 sets of regulations which may apply?

Then you need to look at the taxation side. Any profit you make will be taxed at your highest rate of income tax and when you sell you will have to pay Capital Gains Tax., though there may be reliefs.

I decided I would be better off keeping the money in the bank. You need to decide whether or not to borrow the money. If you feel that property is still a good investment you may be better off buying a more expensive house to live in yourself. At least that would avoid the CGT problem.

DavB93

herbiesjp wrote:

Do you have a 15% deposit?

What is the expected rental income from the property?

I don't have a 15% deposit, I've got around 10% deposit and truthfully not totally sure about rental income.

dunstonh

You are doing this for investment purposes but you have no idea of the rental income?

You are going to be entering what is classed as a high risk transaction (you are borrowing to invest which if goes wrong can see you lose not only the let property but your own house as well). However, you don't appear to have done any research.

You are borrowing money but dont know if the rent will cover that. How much are you going to need to put aside for income tax? How much are you going to be paying the letting agency? How much is the maintenance going to cost you? Could you afford 6 months of no income if property goes empty? Are you aware of the legal liability you have as landlord? Are you aware that the rental yields on properties have never been as low as they are currently?

When you have professional landlords pulling out of certain areas or ceasing to buy new properties (or at least being much more selective than they have ever been) do you think you as an amateur to this can just make money for nothing?

You need to forget the hype and concentrate on what you are doing and the consequences of various scenarios. Plus why you are doing it.

A flat of £68k with a 60k mortgage is going to cost you around £180,000 in interest payments over 25 years. In 25 years time, that flat is going to be worth around £250k? (thats an unknown). So, you think thats a gain? Wrong, the lender is now asking for their money back so you have to pay them £60,000. So, its cost you £240,000 for a property worth £250,000.

Now you have to factor in capital gains tax. £250k minus 68k is £182,000. Thats your gain. We will assume a £32k allowance for future inflation and income purposes. That means you now pay 40% of £150,000 which is £60,000. So you now have a property worth £250,000 that has cost you £300,000.

Get the right property, the right area, dont borrow as much and have good tenants for the whole period and you have good potential. Get it wrong and it will be an expensive nightmare which in worst case could see you homeless.

silvercar

seems a lot of negativity around. whereas I agree with the sentiment of posters I have had a very positive experience so far (touch wood).

bought BTL at the same time as moving house (in order to keep house chain intact). Tenant moved in (with all tenant checks incl. guarantor done, CORGI certified gas etc, 6 weeks deposit paid) 10 days after we completed.

Basically you need 15% deposit, though I have heard that there are 1 or 2 lenders who will accept 10%. you also need the rent to cover the interest only monthly mortgage payment by 25-30%. Again I have heard that there are a couple of lenders that will take less.

So 68k property, £10k deposit, mortgage of £58k = £266 at 5.5%. rental required is about £340 per month.

dunstonh

don't mistake caution and risk warnings with negativity. The potential is there. Its just a case of knowing what you are doing and the consequences of your actions.

A mortgaged buy to let transaction is a high risk investment. Not knowing what you are doing and what can happen just increases the risk. You have people who have complained about endowments and that they wouldnt have taken the risk. Now those same people are doing buy to lets and the risk there is far greater. They wont have anyone to blame this time if it goes wrong and the consequences can be a lot worse than being a couple of thousand pounds short at the end.

silvercar

A flat of £68k with a 60k mortgage is going to cost you around £180,000 in interest payments over 25 years. In 25 years time, that flat is going to be worth around £250k? (thats an unknown). So, you think thats a gain? Wrong, the lender is now asking for their money back so you have to pay them £60,000. So, its cost you £240,000 for a property worth £250,000.

The bit missing, is that your tenant will have paid the interest on the mortgage not you!

PoorDave

You can get a quick idea of rental income from rightmove.co.uk (look at properties to rent in the post code you're interested in). Keep in mind that if something's listed on there "to let", it doesn't yet have a tenant, and that might be becquse the rent asked for is too high!

Also, talk to local rental agents about what you could realistically get for it per month, remembering they're trying to get your business, so a pinch of salt may be required.

A_Nice_Englishman

silvercar wrote:

The bit missing, is that your tenant will have paid the interest on the mortgage not you!

Well, maybe, assuming there are no void periods and interest payments do not exceed rental income less expenses for the whole period.