buy to let confusion

gehngus_2

I have just finished a barn conversion and am ready to buy another property.

im told buy to let is a good way to go but the numbers are confusing.

actually its all confusing? how would it work..

The property i have is worth 195k with a current morgage of 57k
the house i want (yes its a house not a barn) is 185k ripe for renovation and with planning to build another dwelling and it will become my new home.

the rentable value of the house im in is 600pcm

my declared income is 24k py part time permanent.
wife pt 5k py
the rest of my time is spent doing up the property i live in so isnt an income as such, but i get more from it than i can earn

still with me?

ive been led to belive i can rent this house out and still afford to get the next house. but i cant figure the maths out.

i only want interest only mortgages as my investment is in the property as i work on it, it increases value etc.

i think it works like this?

the rent pays the mortgage plus some left over.

i buy the next house with my income and the wife's and the extra from the house. but when i add it up i wouldnt have enough? would i?

with vat back from the build ive finished i should have about 25k to put in if nescesary (or to use for repayments etc.

can anyone help me understand how it works?

thanks
Steve

A_Nice_Englishman

If my understanding is correct

At the moment:

Your income is £29K
You owe £57K (2 x income)

No problem there

If you let out your existing house and buy the second one:

Your income will be £29K + , say, £6K profit = £35K
You will owe £57 + £185K = £242K ( about 7 x income)

I doubt if anyone will lend on that basis I'm afraid

nrsql

I think you are saying that you will rent out your current house with a buy to let mortgage and live in the new house while you renovate it?
Then you could get a higher mortgage on your current house.
Say you take a 100k interest only mortgage that will leave 43k.

So you will need a mortgage of 185k - 43k = 142k on the new house.
The rented house mortgage will be covered by the rental income so shouldn't affect the new mortgage.

Gorgeous_George

195K at 5% = 812.50 per month (or 633.75 after basic reate tax - 487.50 after higher rate tax).

Whichever tax band that you are in, a BTL would not stack with a rental income of only 600 per month - you would be throwing money away.

Sell the first and do not consider a BTL without doing the sums allowing for voids, repairs, letting fees etc.

Good luck



GG

silvercar

nrsql wrote:

I think you are saying that you will rent out your current house with a buy to let mortgage and live in the new house while you renovate it?
Then you could get a higher mortgage on your current house.
Say you take a 100k interest only mortgage that will leave 43k.

So you will need a mortgage of 185k - 43k = 142k on the new house.
The rented house mortgage will be covered by the rental income so shouldn't affect the new mortgage.

Totally agree with this. Most lenders will consider that a monthly rental of £600 can service a £100,000 BTL mortgage, so thats your current home sorted.

For the new home you get a mortgage based on your incomes of £29,000. Work out what mortgage you need. From your figures I worked out £43k equity from your current home, £25k payment due (?) leaving you with a mortgage of about £120k. Not impossible on your salaries.

It may be worth seeing a broker to find out if some lenders will consider your doing up of property as another income stream for self-cert. mortgages.

I'm not sure if you have some reason to keep your existing property, if not why not sell it?

Conrad

Obtaining a second mortgage can be done, there are various ways to approach.

Some lenders will ignore the existing mortgage so the comment about about 7x income isnt correct in all cases.
Obviously CGT will not be payable on the main residence so perhaps engineer the process to meet this objective. I think you can have 2 main residences simultaneously. Some couple would own the second property in one name with the plan to reside (whilst differences sorted etc)