Rent out flat and buy a new place

razza100

Some advice needed please.

I bought my flat 4 years ago in a desirable part of town. It's valued at £185k and my outstanding mortgage is £160k. The dream scenario for me, would be to keep the flat and get tenants in (this would cover the mortgage payment) and purchase a new property to live. What I don't know is how to go about this and what the process is?

Also, would I be able to take the equity out of the flat to put towards a deposit on a new place?

Any suggestions or experience in doing this would be great.

DannyboyMidlands

It doesn't sound possible for you at the moment. You will need to pay your current mortgage down to 75% LTV (ie £138k outstanding) and then save a separate deposit for the new place.

BitterAndTwisted

Once you've factored in the tax payable on the rental income it may not make any financial sense, especially if you don't earn enough to pay two mortgages.

Once this property ceases to be your primary residence your lender could insist that you convert to a Buy-To-Let mortgage. At present you don't own enough equity to qualify for one.

Werdnal

You would need consent to let from your mortgage provider, some agree, some add extra costs and clauses, some refuse.

Then, if its leasehold (flats often are), check your lease as you may also need permission from the freeholder.

Then you need to comply with all the legal obligations of becoming a LL. Read this post as a good starting point:

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

Your rent will only cover your mortgage if the tenant actually pays on time, regularly and without any defaults. It is also wise to only base your annual income on 10 months rent (to allow for voids), and anything else is a bonus. Could you cover the mortgage if your tenant stopped paying?

You also need a generous contingency fund for repairs - you are obligated to attend to any faults in the property quickly and you cannot use the "I can't afford it this week" excuse when your tenant has no heating!

Having 2 mortgages - one on your let and one on your own home, makes this even more of a financial risk. Letting a property can be rewarding when it goes well, but can quickly drown you when it doesn't!

razza100

Thanks for responses so far.

I let out the property a few years ago when I moved abroad, and applied for consent to let with my lender which cost £250 - no problems there. I also passed control over to a letting agent who charged 8% - again no problems there and that is the route I would take this time round.

I would be fairly comfortable paying 2 mortgages but no for more than 4 months of the year.

Why do I need to get to 75% LTV?

johnbusby

razza100 wrote: »

Why do I need to get to 75% LTV?

To get a BTL mortgage

razza100

Surely I can get consent to let like I did before? No?

BitterAndTwisted

razza100 wrote: »

Why do I need to get to 75% LTV?

Because that is the minimum that lenders will demand on a BLT mortgage. Some will also insist that the projected rental income a month is 125% of the mortgage-payments.

If your lender has already agreed to give you Consent To Let previously do not assume that they will give it again.

If you don't have enough income to pay both mortgages comfortably you could be putting yourself and the roof above your own head at terrible risk.

Werdnal

razza100 wrote: »

Surely I can get consent to let like I did before? No?

Depends on your lender. Consent to let is a temporary arrangement - you moved abroad temporarily and came back to live there again.

Lender may decline and make you take BTL arrangement, which is intended for someone who is becoming a LL and living somewhere else.

You must also remember that when you want to sell your "let", as it is no longer your main residence, you will need to pay CGT on any profit over the personal allowance.

johnbusby

razza100 wrote: »

Surely I can get consent to let like I did before? No?

It is one thing getting consent to let for a year or a couple of month but the banks will not this go on indefinatley.

Why would they take on the extra risks of a rented property without the increased payments of a BTL mortgage?

skater_kat

why don't you sell the current flat and take the equity into a new place? far less risk