Buy to let mortgage advice.

HopefulBTL

Here is my situation.

I earn around £17000 a year and I want to take out a mortgage for around £75k-£80k on the property I share with my father which has a value I estimate at around £125k - this is affordable as I save a large part of my income as it is, and I have very few fixed out-goings. I also have a contingency fund saved of around 20k.

I want to pay for the mortgage from my own earned income and then use the loan I receive as a downpayment on one or more buy to let properties, generally I'm looking at 75% LTV BTL mortgages which would mean a total loan of up to around £240k.

My over-riding concern with any potential BTL is the rental yield I can achieve which must cover the mortgage, with a mind to long term realistic interest rates.

Now, if I run these figures through a well known online mortgage search site, it tells me this is all hunky dory, but I know life isn't that easy.

Can anyone with industry knowledge or experience give me their opinion if this plan is a reasonably realistic one? And how likely am I to be able to loan the figures and ratio's that I've suggested above?

I plan to go through a mortgage broker and possibly a professional property search company when I'm ready, but I still think property has a bit to fall in my area, which is Merseyside.

Two more things, buying at auction would likely be a good way to help maximise the potential rental yield on a carefully chosen property, but I'd imagine it might be more difficult to get a loan on the terms I'm suggesting above? Also, is there any added complications or reluctance from lends to loan for properties with sitting tenants, or would this be a help if I could demonstrate current rental income exceeding 1.25 times the monthly mortgage payment?

friendlymortgageadviser

Hi,

The amount you can borrow on a btl is more down to the rental income than your earnings.

Do you know how much rent you can get for the property you currently own?

Your plan does sound viable.

With regards to Auctions you need to be careful as you have to pay 10% deposit immediately and also complete on the purchase in 28 days.

Sitting tenants are not normally a problem for btl purchases.

GMS

Many Buy to Let lenders require a minimum earned income of 25k which will exclude you.

You may still be able to arrange a BTL loan but the number of lenders will be substantially less. Rental income needs to be sufficient to cover the mortgage plus a percentage, generally 25% more.

For the current property you may need to lower the loan amount as your income multiple will be high. Depends upon your circumstances.

You should seek advice from a broker as to the best way forward. Many Buy to Let products are broker only and there are some exclusive products around at the moment.

Buying at auction may well mean a cheaper property but many properties are in the auction for a reason such as poor condition. You would need to put 10% down on the day and complete within 28 days usually. This puts a tight timescale on the mortgage being arranged and if the property is not suitable for letting then you would not get the finance.

Above all do your research properly. Do not dive in thinking it is a money tree.

HopefulBTL

friendlymortgageadviser wrote: »

Hi,

The amount you can borrow on a btl is more down to the rental income than your earnings.

Do you know how much rent you can get for the property you currently own?

Just to re-iterate, I plan to stay living in the property I own, but I estimate a mortgage of £350-£400, with a rental potential here of £600+

As to any property I purchase, the key factor for me will be ensuring I exceed the 125% loan to rental potential.

With regards to Auctions you need to be careful as you have to pay 10% deposit immediately and also complete on the purchase in 28 days.

As to an auction property, if I go this route, I was hoping I could get a pre-approved mortgage in principle.

GMS wrote: »

Many Buy to Let lenders require a minimum earned income of 25k which will exclude you.

Yes, this will probably be my biggest stumbling block I fear. I could potentially earn a few thousand more by switching companies relatively easily, but not straight up to 25k and I worry that switching employment would count more against me than a few extra thousand would go for me in any mortgage application.

You should seek advice from a broker as to the best way forward. Many Buy to Let products are broker only and there are some exclusive products around at the moment.

Absolutely, and this is my plan eventually - I just wanted some general advice so as not to be wasting a broker's time saying I plan to purchase in 6 months time.

Above all do your research properly. Do not dive in thinking it is a money tree.

I'm looking at this as a very long term investment, in effect a pension, thus I'm not looking for any net income until the mortgage is payed off. I'm going to be very very careful about any potential properties and try to eliminate as many downsides as possible, but I realise that there's always a risk when I'm borrowing someone elses money for such a venture!

Thankyou both for all your advice, it's very welcome.

GMS

Buy to Lets can be a good long term investment.

Where in Merseyside are you? I am based there and in my area there are not enough properties to satisfy rental demand (in the words of a local agent).

HopefulBTL

GMS wrote: »

Buy to Lets can be a good long term investment.

Where in Merseyside are you? I am based there and in my area there are not enough properties to satisfy rental demand (in the words of a local agent).

I'm just outside Liverpool and I'm probably looking to invest in Liverpool or one of its suburbs.

From the research I've done so far, the market seems good for rentals as long as the rentas are priced at realistic levels. It looks like some people have bought at the top end of the market on highly leveraged rates and are clinging to the hope they can get too high a rent. Eg, the flashy luxury apartments in the city and the nicer suburbs like Allerton and Mossley Hill.

dimbo61

If only it was that simple
Once you have found and purchased a property you then need to make it fit for rental!!!!
Electrics, gas safety checks, landlords insurance, getting the right tenants, market!! agents fees, advertising fees, cleaning,

HopefulBTL

dimbo61 wrote: »

If only it was that simple
Once you have found and purchased a property you then need to make it fit for rental!!!!
Electrics, gas safety checks, landlords insurance, getting the right tenants, market!! agents fees, advertising fees, cleaning,

I'm certainly under no delusions this is a way to make a quick fortune or an easy buck, but I do feel that property, careful chosen and with a view to the long term is a good financial investment.

I also feel that there is some good value to be found at the moment with carefully researched properties with a lot of motivated sellers (and agents).

But I'm looking at this all very carefully, costing in as much forseeable and unforseeable costs as I can and the opportunity cost of investing elsewhere, and it still seems like a good opportunity.

Thrugelmir

HopefulBTL wrote: »

I'm looking at this as a very long term investment, in effect a pension, thus I'm not looking for any net income until the mortgage is payed off. I'm going to be very very careful about any potential properties and try to eliminate as many downsides as possible, but I realise that there's always a risk when I'm borrowing someone elses money for such a venture!

The one risk factor you can never eliminate from any business is the customer or in your case tenant.

With regards to the longer term. Have you crunched the numbers to work out how much after tax income will be required to repay the mortgage?

HopefulBTL

Thrugelmir wrote: »

The one risk factor you can never eliminate from any business is the customer or in your case tenant.

With regards to the longer term. Have you crunched the numbers to work out how much after tax income will be required to repay the mortgage?

Oh I know I can't eliminate risk, but then you can't eliminate it from any 'investment' as we know, putting your cash in the bank risks the interest not matching inflation and in these crazy times even the bank going bust!

There's a lot of 'what if' scenario's in my plan at the moment, as I still have a fair number of unknowns and will do until I speak to mortgage brokers and property advisors, but I think that with my savings and earnings I would be able to sustain mortgage payments on both properties for between 6 and 12 months, at 75% LTV - possibly longer with the interest part of the mortgage payment deductable against tax? But I think I don't pay enough tax to fully enjoy the benefit of that.

Hopefully this should be enough time to get in decent tenants, but naturally no guarantees.

Thrugelmir

HopefulBTL wrote: »

Oh I know I can't eliminate risk, but then you can't eliminate it from any 'investment' as we know, putting your cash in the bank risks the interest not matching inflation and in these crazy times even the bank going bust!

There's a lot of 'what if' scenario's in my plan at the moment, as I still have a fair number of unknowns and will do until I speak to mortgage brokers and property advisors, but I think that with my savings and earnings I would be able to sustain mortgage payments on both properties for between 6 and 12 months, at 75% LTV - possibly longer with the interest part of the mortgage payment deductable against tax? But I think I don't pay enough tax to fully enjoy the benefit of that.

BTL is a business not an investment. With an investment you only your original lose your stake, however with a business its conceivable to lose everything far more.

Any profit made from letting will be subject to income tax. What you have to calculate is how much profit after tax is required to repay the mortgage. Over the term of the mortgage i.e. 25 years you will incur refurbishment costs on the property. This needs to be factored in as well.

Never fails to amaze me how often people set off on a long term project. Without giving the matter the thought it deserves.