renting out rooms - interest only mortgage?

bobby_davro_2

Hi
I'm looking to purchase a 3/4 beds property with the idea that i can rent out the othre rooms.

the mortgage will be around 115k and i will need the rental income to stay fully afloat.

Am i best getting an interest only mortgage for this, or should i still try and pay off the capital at the beginning?

thanks

clutton_2

if there are 4 of your living in one house, you will need to comply with the HMO regulations, and this may cost you money to bring the house up to standard. Before you buy, talk to your local council.

martinpike

Your income from 3 lodgers will almost certainly exceed the tax free amount allowable under the rent-a-room scheme, so read up on that too.

miss_pink

What you are doing is really buying to let, you will live there but you are going to let the other rooms out. This requires a buy to let mortgage and a 15% deposit. If i were you id get an int only mortage but dont mention your intention to let out the other rooms to either you IFA or solicitor. I think what your doing is a fab way to make money.

bobby_davro_2

Hi,
i think the house has already beedn rented out before, so hopefully not too much is required to bring it back up to spec.

clutton_2

miss pink - i think you may have got hold of the wrong end of the stick with BTL mortgages. You get a BTL so that OTHER people can live in your property, and you are right he will need a 15% deposit. If he does not disclose that this is a HMO his insurance will be invalid if there is a problem. If he does not declare it as a HMO to the council he risks £20,000 fine !!!!!!

The rules covering family lets are very different indeed to lets to individuals - i strongly urge you to ask the council.

miss_pink

clutton wrote:

miss pink - i think you may have got hold of the wrong end of the stick with BTL mortgages. You get a BTL so that OTHER people can live in your property, and you are right he will need a 15% deposit. If he does not disclose that this is a HMO his insurance will be invalid if there is a problem. If he does not declare it as a HMO to the council he risks £20,000 fine !!!!!!

The rules covering family lets are very different indeed to lets to individuals - i strongly urge you to ask the council.

Oppsie, my mistake, thanks xx

bobby_davro_2

hmm..
Ok the house is a 4 bed, but i'll probably only end up renting out 2 of the rooms.
Lets say that's at £230 a month times 2 people that would be £5520 a year.
And that's only if they stay there for a full 12 months.

Does that still push me over the edge for tax?
And don't want to get all moral here, but how easy is it to get found out anyway?
Would that be an instant fine, or more likely that i would just have to pay the missing tax?

Seems a bit extreme that i need to find 15% deposit just to rent out a couple of rooms to help me out for the first couple of years.

maninthestreet

Why not just buy a 1/2 bed property with a mortgage you can afford on your current income? It's the way most of us started on the property ladder.

bobby_davro_2

That was when prices were low and on the rise.

Prices now are probably at their peak and could crash at any time.
If i can purchase a place where i have a couple of rooms rented out to help cover the mortgage, then if there is a crash ( extremely hopeful there won't be ) i won't be too badly affected.

And if the house prices rise again, then i'm onto a winner.

But it seems one of the few ways i can actually make money from the current housing market

Rachman_2

bobby_davro wrote:

That was when prices were low and on the rise.

Prices now are probably at their peak and could crash at any time.
If i can purchase a place where i have a couple of rooms rented out to help cover the mortgage, then if there is a crash ( extremely hopeful there won't be ) i won't be too badly affected.

And if the house prices rise again, then i'm onto a winner.

But it seems one of the few ways i can actually make money from the current housing market

So where do you 'make' money ?

You are on an IO mortgage (or going to be) - you are renting from the bank - no other real way to put it - the only positive you have is the possibility of future capital appreciation.

with respect, if you are looking at a £115K mortgage that's £5,750 a year and you indicate you need the rent to keep your head above water. Which tells me either you have no spare income or you don't want to/can't pay the mortgage yourself. Which sets off alarm bells at my end.

Let me picture the likely scenario of say 2 months a year without sharers or people who live like p1gs you want to get rid off - do your numbers still work ?

Strikes me as an odd thing to be doing - gambling on a capital rise and not paying the debt down - good luck to you if you can pull it off, but I am sceptical by nature..... - myself I like to see my debt reduce over the term, rather than just spending it - otherwise how are you going to pay the mortgage off at all - if it goes up in value anything you buy next will be more expensive by a larger margin than yours is, which will just mean an even larger mortgage, no ?