Lowest deposit on buy to rent possible? and is it worth it?

RuleTheWorld

After five years in my first flat I am now looking to move somewhere bigger, and move in with my girlfriend sometime within the next year.

I am in quite a good position with the flat as valuation would be potentially as high as 180k and outstanding mortgage is currently 115k, say for easy maths 110k when I get round to moving as paying off quite a lot per month.

So 70k equity potentially and maybe 20k could be realistic joint savings at the time of the move.

What are the lowest deposits realistically possible for buy to lets and house purchases at the moment? With ambitions of moving somewhere much bigger, certainly 300k+ I'm thinking it might just be too tight to keep on the flat but it seems like it would be a missed opportunity?

kingstreet

You're going to find yourself with two parameters for a buy to let. The first will be the loan to value and the second the rent to mortgage payment.

Realistically, the best LTV you're going to get is 80%. You might find the odd deal at 85%, but the rate will be poor.

On the other issue, the lender will have a set formula for the amount by which the rent has to exceed the monthly interest-only mortgage payment. These can be anything upto 130%, although 120% to 125% is most likely.

So, you have to work out if the likely rent is enough to support the loan to value you'd like.

Here's an example;-

£100,000 purchase price. Mortgage of £80,000. 80% LTV.

Monthly rent = £500. Mortgage interest rate 5.5% so interest payment = £367.

Lender insists on 125% rental cover, so £367 x 125% = £459 and this falls within £500 rental figure, so case can proceed.

Be careful of lenders who have a particular rate used for their calculations. A lender may use 5.99% and 125% regardless of the payment rate, so the above example case would be right on the borderline with rent at £500 and the rental cover at £499.

RuleTheWorld

Ok thanks.

Also, whats the legality of leasing a flat on a regular mortgage? Say re-mortgage the flat and move out a few months later and move a tenant in a couple months after that?

mlz1413

It always worries me when people and money savers alike come to an open forum as their first step in research!

Try a compariston site for general info on mortgages available for B2L and residental, but for specific advise based on your earnings, property values and deposits you really do need to and see a mortgage advisor try and go to an independant one so you get a unbias opinion of what is on offer.

Do remember letting out a flat makes you a LL and you need to be aware of what responsiblities this brings, dps/ gas certs/ smoke alarms to start with. Using an agent doesn't remove your responsiblilty.

Do remember interest rates will rise at some point, will your outgoings increase (ie having a child) your incomes be reduced (job security).

Do yourself some spreadsheets and see what yields the possible rental income will bring you, only base it on 10 months pa and factor in the time you will need to run the rental professionally.

kingstreet

RuleTheWorld wrote: »

Ok thanks.

Also, whats the legality of leasing a flat on a regular mortgage? Say re-mortgage the flat and move out a few months later and move a tenant in a couple months after that?

Whenever it ceases to be owner-occupied you'd need to seek consent to let from the lender. Your mortgage rate may be adjusted to reflect the change.

neverdespairgirl

RuleTheWorld wrote: »

Ok thanks.

Also, whats the legality of leasing a flat on a regular mortgage? Say re-mortgage the flat and move out a few months later and move a tenant in a couple months after that?

If you re-mortgage intending to do that, it could well be fraud.

RuleTheWorld

so still having a good think about this......

Just using HBOS so far who I am already with....

Decreasing the equity to 25% on a value of 175k increasing the term to 25 years and getting consent to let (which would mean the variable rate moving to 4.84% as opposed to 3.5%).....would give a repayment mortgage monthly payment of 763.64. So assuming rent of 950/month and with a factoring fee of 50/month and contents insurance of 10/month......I can see why a lot of the buy to let examples are on interest only mortgages.

I'm still keen to keep investigating more but do think its more likely i'll sell