BTL dilemma - help required

franklee

My quick back of an envelope figures would go something like this.

IF you want to keep to the traditional borrowing salary multiples for the new house, it's max 3.5 times salary, you'd be borrowing a max of 157K to buy the new house.

You have 20K in savings plus you reckon 135K equity, total 155K.

Against that is 3.5K debts, say six months rent contingency cash for the rental which is 5.5K, a 25% deposit left in the old house which is 50K plus the new house deposit of 118K, stamp duty 8K, solicitors fees say 1K, total 186K, plus other moving costs.

Maybe a broker could swing your borrowing more but why is it you want to become a landlord? With the one house you're comfortable, two and IMHO it looks very exposed to property with little reason to.

An issue is the deposit to buy the new house needing to come out of the old one, can you do that and keep your tracker mortgage which at BoE base rate plus 0.5% is very good and worth hanging on to. If you can port that mortgage to another property then why not just sell the old house and buy the new one? Then you'd only need to up your borrowing by 75K, so you'd be borrowing a safe just over three times salary.

molit wrote: »

right, I've done what you wanted to do, and yes it is possible.

This is my suggestion, firstly, have a chat with a mortgage broker - explain exactly what you want to do. Work out if you are likely to get consent to let on your current house. If so increase your residential mortgage to take account of the tax benefits. The get consent to let from your provider -0 you might have to wwait a few months, but a decent mortgage adviser can do that.

my currnt consent to let with alliance and leicester/sdantander is £95

Then move forward. BTW there are a lot of poeple on tyhis board who will just say sell, and try and persaude you to...

Yes, obviously the OP would need to get professional advice as you say but you indicate it's possible so how would you make his figures work and why be so exposed to property at this time?

molit

the comment refers to renting out a property, and then releasing equity. The yes you can do it doesn't mean that you should

I think it is doable, but it will be tight - I would say remortgage your current property to 80% LTV, to get 90k equity, - repayments on that should be in the order of 650pcm on a residential mortgage, as long as you can get consent to let on your main property - affordability should not be an issue. Realistically, you should be able to break even with a rent of 900pcm.

Mortgages can go up to 4.5 times salary (nationwide), so that would get you to 210k - less cc repayment, and fees, it is just possible to afford it. Down side, no emergency fund.

As I said, it can be done, its your choice, and may not be wise.

Why be exposed to so much property at this time - OPs choice....as I said, you CAN do it, but think long and hard about whether you want to.

To be honest, If I was doing this I'd say no more than 250k for the next house.

franklee

molit wrote: »

the comment refers to renting out a property, and then releasing equity. The yes you can do it doesn't mean that you should

I think it is doable, but it will be tight - I would say remortgage your current property to 80% LTV, to get 90k equity, - repayments on that should be in the order of 650pcm on a residential mortgage, as long as you can get consent to let on your main property - affordability should not be an issue. Realistically, you should be able to break even with a rent of 900pcm.

Mortgages can go up to 4.5 times salary (nationwide), so that would get you to 210k - less cc repayment, and fees, it is just possible to afford it. Down side, no emergency fund.

As I said, it can be done, its your choice, and may not be wise.

Why be exposed to so much property at this time - OPs choice....as I said, you CAN do it, but think long and hard about whether you want to.

To be honest, If I was doing this I'd say no more than 250k for the next house.

So at 80% LTV the current property would have a mortgage of 160K. To make it's repayments of 650pcm you'd need interest rates of about 1.6%, not good to plan with that even if it's attainable in the short term. If the OP's BoE base rate plus 0.5% can be kept for a letting I'd still assume the BoE base rate will be at more normal levels in the next few years.

4.5 times the 45K salary is 202.5K not 210K.

Anyone letting does need an emergency fund.

It all looks very tight to me, no obvious gain to be had yet a lot of risk.

OP, can you live in the current house till you are ready to go to Japan and reconsider then?

Graham_Devon

molit wrote: »

the comment refers to renting out a property, and then releasing equity. The yes you can do it doesn't mean that you should

I think it is doable, but it will be tight

Tight?

It will be at a loss with a mortgage rate of just 5%.

franklee

Graham_Devon wrote: »

Tight?

It will be at a loss with a mortgage rate of just 5%.

A 160K mortgage at 5% (and 25 yrs) would be 936pcm repayment (667pcm interest only). Against rent of 900pcm, quite a loss when letting agent fees, maintenance etc. are taken into account.

molit

@franklee was assuming would go on interest only - i accept it is a challenge to get 80% on IO (Nationwide at 4.2%) but it is doable. If this is the approach that is taken then fix for as long as you can would be my advice - the 202.5k my bad.

The choice is the OPs

I missed the second comment/the bit about funding a trip to japan that was made by the op - doing it this way, it would be a very long time before you could get enough equity back in order to reduce the payments in order to provide income to fulfil the dream. It is always tempting to try and create an income with property to allow yourself to go travelling, but at the moment, if you max out house 1 to provide the cash to buy house two, you wont be getting any profit from that house.

As I said, you could just about do it, it would be risky, and although it might provide you with an income out in Japan, I doubt it would be enough to live on

So imho, the answer to the first question - yes you could - I wouldnt go to the extremes that you are talking about though. The second....I'd be looking at things like TEFL to supplement income so that it would be affordable. The question is whether you should, and only you can answer that. I have done something similar, but I made sure I have a lot of headroom, so wasnt going to be playing the percentages as tightly as you would have to. I am also young (??) free (apart from a 9-5 job) and single (apart from a few commitments to Ms Santander), and on a similar wage, but not having to support a family - persoannly, I wouldnt be comforable doing it in my position with the figures you're discussing, but theoretically, you could do it

franklee

molit wrote: »

@franklee was assuming would go on interest only - i accept it is a challenge to get 80% on IO (Nationwide at 4.2%) but it is doable. If this is the approach that is taken then fix for as long as you can would be my advice

Ah I see, blimey I didn't realise you could get 80% on an interest only mortgage these days without putting an investment vehicle in place to repay the debt. So that would be a residential mortgage and then the OP would need to get consent to let, can you get consent to let on a interest only mortgage if there's no vehicle to repay the debt? Would he then be able to get a good deal on his new residential loan I imagine the first loan would at least hinder the second unless he was meeting BTL type requirements on deposit and rental coverage, especially if he wanted to push it with salary multiples.

I must say I wouldn't want to go anywhere near it with these figures myself

molit

@franklee its the OPs choice, but i wouldnt disagree with you.

franklee

Well at least the OP has something to think about

OP, if you want to play with some figures there's a handy Mortgage calculator here:
http://yourmoney.moneyadviceservice.org.uk/mortgagecalc

ManAtHome

Nationwide are reducing interest-only from 85% to 75% tomorrow for residential http://www.moneymarketing.co.uk/mortgages/nationwide-caps-interest-only-lending-at-75-ltv/1029129.article