Switching to a Buy-To-Rent mortgage?

sniperpenguin

Hi,

Im currently out of a deal (SVR is nice and low, so no point renewing) and am 3 1/2yrs into an existing mortgage.

A potential job has come up which may result in a requirement to move, and since our mortgage is currently so low (~450/mth) we were considering renting out the property instead.

To keep things legal, we would need to switch to a buy-to-let mortgage I believe. What are the pitfalls of doing so, and is it an easy process?

Thrugelmir

sniperpenguin wrote: »

What are the pitfalls of doing so, and is it an easy process?

Tenant doesn't pay rent, no tenant in property so void period with no income, being available to attend to tenants needs if no managing agent employed etc etc.

Property letting is a business. So you get all the risks and rewards that go with it.

Not just a matter of collecting and banking the rent!

Better option maybe to port the mortgage and retain the low rate you are on, if your lender allows.

kingstreet

You don't need to switch to a buy to let. Before you do anything else, ask your current lender for their terms for providing consent to let.

sniperpenguin

kingstreet wrote: »

You don't need to switch to a buy to let. Before you do anything else, ask your current lender for their terms for providing consent to let.

Thanks, have done so and got the following:

- £50 fee (offered to put it on the mortgage - HA! :rotfl:)
- 6mth "free period"
- 1.5% APR penalty whilst letting.

Also:
- Cant take on a mortgage "deal" whilst letting (although he suggested there would be nothing wrong with getting the deal beforehand)
- Can switch back without penalty (and the 1.5% disappears)
- Certain tenants would need letters of character (or similar) beforehand.

Doesnt sound too bad, extra interest will work out about an extra £80/mth but then I always assumed a BTL would cost more.... any thoughts?

Thrugelmir

What's your forecast profit on letting the property?

gastroboy

sniperpenguin wrote: »

Thanks, have done so and got the following:

- £50 fee (offered to put it on the mortgage - HA! :rotfl:)
- 6mth "free period"
- 1.5% APR penalty whilst letting.

Also:
- Cant take on a mortgage "deal" whilst letting (although he suggested there would be nothing wrong with getting the deal beforehand)
- Can switch back without penalty (and the 1.5% disappears)
- Certain tenants would need letters of character (or similar) beforehand.

Doesnt sound too bad, extra interest will work out about an extra £80/mth but then I always assumed a BTL would cost more.... any thoughts?

Which mortgage lender is this?

Thrugelmir

gastroboy wrote: »

Which mortgage lender is this?

From the interest loading for CTL appears to be Nationwide.

sniperpenguin

gastroboy wrote: »

Which mortgage lender is this?

Nationwide.

What's your forecast profit on letting the property?

This may sound incredibly naive, but I'm not looking for a "traditional" profit.

The rough equation in my mind was

Rent = (Mortgage + CTL loading) + Excess

With the excess going into a slush account to cover repairs, insurances etc. Tenants would be known friends if possible, with preference given to a stable payer rather than high rent / high turnover of tenants. The main goal of this was to "keep" the house as a viable option for the future, whilst increasing the equity in the property.

Above the base mortgage cost, what excess is normally placed on a rental value?

Thrugelmir

sniperpenguin wrote: »

This may sound incredibly naive, but I'm not looking for a "traditional" profit.

In business there are 2 outcomes either profit or loss. Without a business plan there's no way of knowing what the likely outcome will be. Whether the potential return is even worth the risk.

From your calculation you have omitted tax liability.

Keep your friends seperate from your business. You need to detached and emotionless when faced with difficult situations.

sniperpenguin

Thrugelmir, thanks for your responses

Regarding the friends / business split.... I've had experience in this area, as we've held several lodgers in the past. A tenancy agreement would be in place along with the financial responsibilities of both parties. I have no intention of letting people move in without deposits, or stay when they cant pay for example.

On the flipside, having known people as tenants can be a benefit when co-operating to effect repairs (say to a broken boiler) and tend to be less picky of cosmetics (rather than demanding you redecorate ) or hassle from 3rd parties (say landlord insurance is delaying work to the property).

I understood tax liability would need to be declared if it hit a certain amount (and did not include interest payments mortgage) - Am I misunderstood? I do intend to get professional advice in this area from my IFA before I go ahead, although I wish to avoid rental agencies if possible.

Thrugelmir

sniperpenguin wrote: »

I understood tax liability would need to be declared if it hit a certain amount

Indeed, on any net profit you make at 20%, and at 40% if you are a high rate tax payer.