Getting BTL mortgage

graduatebanker

hey guys, first post here - please be gentle!

I've recently received an inheritance of £25k and am looking to become a BTL landlord Using that money as a deposit, I'm looking to get a mortgage to buy a property in the £80-100k price range.

A bit of background - I'm 23 years old, live at home with my parents just outside London, where I commute to every day. I work in the City, and although it's not everything you see on tv (i.e. champagne and fat bonuses!) I am reasonably well paid for my age - basic salary of £24,000 + a bonus likely to be circa £5k due at the end of the year.

Living at home, I only pay a small amount in rent and as such have quite low outgoings (biggest is the commute.) I do owe about £10k on a personal loan, this was taken out to consolidate debts from uni/travelling, to be paid over the next 2 years. I have a credit card I clear in full at the end of every month - my credit history should be good as I've never missed a payment on anything, and have had credit since I was 18.

Basically my question is - am I likely to be able to get a BTL mortgage? Price range of property will be £80-100k (not near London, but will be in the South-east of England.) Should I look to go direct to a high street bank or to a mortgage broker? Will being a first time buyer essentially exclude me from a lot of BTL mortgages (e.g. the Mortgage Works)?

Edit: I just thought I'd mention I realise being a BTL landlord won't be a ticket to instant riches, however I am interested in investing in property and see it as a good long-term play. There are a few things in my favour - my job is reasonably secure, I live at home with few outgoings, and I actually studied law as my degree at university, so I know a fair bit about property law and the legal ramifications of the landlord/tenant relationship!

thanks in advance

GMS

Being a first time buyer will restrict you to which lenders will allow it and Loan to Value.

Best thing would be to speak to a broker. Buy to Let mortgages vary hugely on rates and fees. It could be that a low rate is not worth the set up fees when compared to another product.

graduatebanker

GMS wrote: »

Being a first time buyer will restrict you to which lenders will allow it and Loan to Value.

Best thing would be to speak to a broker. Buy to Let mortgages vary hugely on rates and fees. It could be that a low rate is not worth the set up fees when compared to another product.

Hey thanks for the quick response!

Out of interest in your experience as a mortgage adviser have you ever come across scenarios like this, i.e. where customers looking to become BTL landlords are essentially first-time buyers? Have they been successful in obtaining mortgages?

Yep, setup fees is something I need to think about - I know they are often considerably higher for BTL products. I'll give a few local mortgage brokers a ring tomorrow or at the weekend - if I go through my circumstances and income + expenditure will they be able to give me an "agreement in principle" from lenders then and there, or is getting an AIP more long-winded than that?

Thrugelmir

What return are you expecting to make?

BTL is a business not an investment. You need to "crunch" the numbers. Hunches are more likely to fail than succeed.

I just thought I'd mention I realise being a BTL landlord won't be a ticket to instant riches, however I am interested in investing in property and see it as a good long-term play.

GMS

There are lenders who will consider it. You mention TMW. They will only allow first time landlords who own a property so this is out for you.

Rental income needs to cover the mortgage, usually by 125% so make sure numbers stack up.

A broker shoudl be able to inform you of options and get you a Decision in Principle.

graduatebanker

Thrugelmir wrote: »

What return are you expecting to make?

BTL is a business not an investment. You need to "crunch" the numbers. Hunches are more likely to fail than succeed.

100% agree with you there mate - one of my work colleagues used to work in the mortgage division of Santander, and he dealt with so many Bradford & Bingley customers who were what he referred to as "cowboy landlords." He said they'd seen BTL like a lottery ticket, bought at the peak of 2006-7 and saw it as a hobby rather than a business. Now it hasn't turned out as planned for many of them. That's the kind of landlord I don't want to be like!

I've number-crunched a few figures - one particular property I've seen is a 1-bedroom flat on the market for £90,000 in a run-down but slowly gentifrying area of the city where I went to university (hence know the area quite well! The city's about an hour's drive from the town I live in with my parents at the moment.) The average rental in the area for a 1-bedroom would be £600-£650 per month.

If I used £20k as a deposit and took out a £70,000 repayment mortgage over 25 years, the monthly payments would be £415 @ 5%, £460 @ 6% and £500 @ 7%. IO would obviously be less than that, and I understand the vast majority of BTL mortgages are interest only, though I really would prefer to go for repayment if possible.

In fact even if the interest rate jumped to 10% this would put the payments for a repayment mrtg at £650 p/m - ok I guess I wouldn't make a profit on the rent, but I could still comfortably afford it out of my salary, all the while gradually paying down the capital balance. In fact, even if the tenants didn't pay for a few months it would be ok - I'd have to cut back on most of my outgoings, but I could nonetheless keep up the payments

Thrugelmir

graduatebanker wrote: »

In fact even if the interest rate jumped to 10% this would put the payments for a repayment mrtg at £650 p/m - ok I guess I wouldn't make a profit on the rent, but I could still comfortably afford it out of my salary, all the while gradually paying down the capital balance.

Don't overlook tax implications. Only interest is deductible from rental income , capital element of repayments is not.

Ideally net profit on letting after tax should generate cash to repay mortgage.

The boom years of BTL depended on capital appreciation to work.

Darth_Mortgage

Hi, maybe its time to think about moving out and getting your first place. You would get a nice rate as a FTB with that size of deposit and if you didnt like living there you could always move back home and ask the lender for consent to let the property.

Yorkie1

You appear to be overlooking a few extra expenses in calculating what it may cost you as a LL / what profit you may get.

1. Calculate it on the basis of 10 months' income, not 12, per year to allow for voids.
2. A flat will have leasehold costs - service charges, length of lease etc.
3. A flat may have a prohibition against being let out.
4. LL's insurance, gas safety certificate, letting agent's fees (if applicable).

See this thread by G_M for more info
http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12

Mrs_Z

Hi, not necesserily an answer to your question but given your circumstances, age, etc - why not consider buying a 2 bed place as a first time buyer? Then rent out the spare room to a lodger. The government's rent a room scheme allows you a tax free income around £4,000+ p.a. You will also benefit by having a residential mortgage rather than a BTL one - you'll save buckets in arrangement fees and will get more competitive rates. You'll also gain valuable experience what's like being a property owner which will help you later on if you do decide to become a landlord. The BTL game can be full of pitfalls with nightmare tenants.

graduatebanker

hey guys!

First of all thanks so much for the responses so far, rly appreciated all of the input!

Just thought I'd give an update - I spoke to a mortgage advisor at London & Country (company was recommended by a colleague at work) who said I should have a reasonable chance of getting a mortgage with either Natwest or Northern Rock. The rest of the BTL lenders either won't lend to first-time buyers or for 75% LTV.

I asked if I could get an AIP there and then, but the broker said this would be a waste of time until I have selected a specific property and made an offer. Is this good advice? I'm worried about going to see tons of properties, finding the "perfect" btl property and making an offer, only to get declined from Natwest & NR.

I know lenders can still withdraw after an AIP or even a formal mrtg offer, but I thought it would be nice to at least get an agreement in principle.

What do you guys think?