Investment Potential - A good time for RTL?

Spadez

Hi,

I got an amount of money for my inheritance and I am looking at smart ways to invest it. I have been looking at becoming a first time buyer of a house and then rent it out to tenants.

My question is, is the time right? I have found a property which is £140,000 and seems like it has potential. I would have a 20% deposit and I have been approved in principle for a loan of up £118K from Natwest of a rate of around 3.5%. The rental I would expect is around £700 and the monthly repayments are £450 on the mortgage.

My concern is, with interest rates looking to increase, should I be concerned about buying a property to let? In regards to mortgages, is a fixed rate deal likely to be preferable?

Any help or input would be really appreciated.

James

Yorkie1

Is that a residential mortgage or buy to let product? 20% deposit and a non-house owner applicant seems unusual for a BTL product. I didn't know fixed BTL products were available. You can't get a residential product if you are going to let the property out.

Have you thoroughly researched the pros and cons of being a landlord? Ready to spend extra money when there are void periods or the tenants trash the place after not paying you rent for several months? Sufficient cash available to do boiler repairs?

Bear in mind you will need to pay tax on the income. Plus get a gas safety certificate, landlords insurance.

I think you vastly underestimate the risks against the potential benefits.

googler

You're going into business. Renting houses out is not a hobby, nor an arms-length investment vehicle.

Do you have a business plan? Do you have a business mentor, perhaps someone who is already renting out houses for a successful income?

Have you researched all your legal obligations as a landlord? Bear in mind these vary between Scotland and E&W.

G_M or ArtfulLodger will be along in a minute with the reference to the new landlords thread.

Werdnal

The guide to becoming a LL is here:

http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12

Read it all, and the links at the bottom, and make sure you understand all the legal obligations of becoming a LL. It is NOT guaranteed income by any means - you should base your business plan on 10 months a year let, to allow for the voids between tenants. You need a contingency fund for unforeseen repairs, tenant damage, gas safety certificates, insurance, missing rent etc. You cannot simply plough all your spare cash into a property and sit back and count your rental income. Oh and the tax man will want his share too!

Once you have read the link, if you still think its a good idea, I think you should look a little more closely at the mortgage offer you mention, as I am pretty sure it is very unlikely that is a BTL offer. As a FTB you many even find it difficult to get a BTL loan, and the deposit percentage is likely to be considerably higher than you quote!

Spadez

My mum started her career as a property developer and now does buy to let property. I would be buying a property in the same location as her, which has up to now been financially successful. I am however wary about taking advice off my parents purely, and really would like to gain my own understanding as well as get the opinion of others.

I am currently only 24. I have just got a job which will allow me to reliably earn an income which means I can save and support the property if there are repairs needed. I do have an understanding of the legal obligations. I believe the mortgage is a standard one, which the premise that I am buying the house to live in, which I will do for the first few months.

Aside from the normal pros and cons of buying to let, does the current economy make buying to let sensible?

EDIT: Thank you for the link, I will read it now.

Werdnal

Mortgage company will be highly suspicious if you live in it "for a few months" and then approach them for permission to let it. They will question whether that was your original plan, and probably refuse!

firsttimetom

Spadez wrote: »

My mum started her career as a property developer and now does buy to let property. I would be buying a property in the same location as her, which has up to now been financially successful. I am however wary about taking advice off my parents purely, and really would like to gain my own understanding as well as get the opinion of others.

I am currently only 24. I have just got a job which will allow me to reliably earn an income which means I can save and support the property if there are repairs needed. I do have an understanding of the legal obligations. I believe the mortgage is a standard one, which the premise that I am buying the house to live in, which I will do for the first few months.

Aside from the normal pros and cons of buying to let, does the current economy make buying to let sensible?

EDIT: Thank you for the link, I will read it now.

When you come to let it, you will have to tell your mortgage lender and your Interest Rate will go up, BTL mortgages seem to be about 1% higher than Residential so that will push up your mortgage payments.

A monthly repayment on a £118k mortgage @ 3.5% is £596 per month (or £344 on Interest only). At 4.5% it is £663 (or £442 on Interest Only).

Spadez

Ok. Clearly I need to do a bit more homework. What about the current economic situation, is it possible to predict what will happen to interest rates in the next 5 years? From a perspective of buying to sell in a few years, would it be fair to say property prices are bottoming out?

Werdnal

Spadez wrote: »

Ok. Clearly I need to do a bit more homework. What about the current economic situation, is it possible to predict what will happen to interest rates in the next 5 years? From a perspective of buying to sell in a few years, would it be fair to say property prices are bottoming out?

Don't think any of the forum members here have access to a Crystal Ball :rotfl: . Perhaps you can have your tea-leaves read, or visit Madam Zara the next time the fair is in town, and tell us all what the future holds!

Running_Horse

Spadez wrote: »

What about the current economic situation, is it possible to predict what will happen to interest rates in the next 5 years?

My mate whose uncle works in a sandwich shop in the city heard someone saying interest rates were about to halve.

Or was it double?

Will get back to you.

Jeffrey_Shaw

A good time for RTL? So what is 'RTL', then?