Changing from repayment to buy to let, advice needed.

Ladygrim

Hello all, I need some advice.
I have a £70k mortgage on a two bed flat that is currently valued at about £130k.

My husband passed away 2 years ago and I am still struggling to pay off the debts and keep up with the mortgage (no - death was not covered in the mortgage insurance).

I am now considering selling the flat, paying off all my debts in full and going into rented accommodation with the remaining lump sum behind me (I am on my own).

I was just wondering, would it be a better option to change to a buy to let mortgage, rent out the flat to cover the repayments (could get about £700pcm for flat) and then just rent a smaller place for myself anyway?

This would then mean I would still own the flat which me and my husband bought together and I would still have that connection to him.

What do you think?

Please give constructive advice/criticism.

Thankyou

LG

kingstreet

If you decided to remortgage to a BTL product, how much would you need to repay the existing mortgage and the other debts to which you refer?

If there isn't enough equity to do this and leave a decent loan to value to satisfy the lender's criteria, you might have no choice but to sell.

Do you really want to be a landlord, with all its responsibilities? What happens if you have no tenant for a few months? Could you pay the increased mortgage?

Dave_Ham

Hi there,

I am sorry for your loss, although whilst I cannot advice how to feel; I can provide some information that may allow you to make a decision.

Changing to a buy 2 let mortgage can prove to have some expensive considerations. The product fee to the banks are typically higher and so are the interest rates.

Factor in cost of an agent to rent the property and possibly manage and this is all eating into your equity.

It is right for many people to do this, although you have to be aware at the outside.

There will additionally be tax implications when you come to sell this house, if you do indeed rent it out for a number of years.

Good luck with whatever you decide.

RenovationMan

I think yo have to do the sums. Will the income from the rental cover your IO mortgage (you might have to get a BTL mortgage, so the interest rate could be higher), the landlords insurance and also have enough to cover your debt repayments. If the answer is a 'yes', then it could be a good option because as long as you focus on debt reduction, eventally your debts will be cleared and you could start putting the excess towards paying off the outstanding blance on the mortgage.

Once your finances are back on track you can then move back into your flat and enjoy reduced mortgage rates due to the overpayments you made during the letting period.

Good luck with whatever option you choose, it sounds like you've had a rough time of it.

kingstreet

I forgot to mention, freeholder's permission to sublet needed if mentioned in lease.

blueberrypie

Have you considered renting out the second bedroom? This would increase your income, and you can earn up to £4250 a year in rent without having to pay tax on it.

Ladygrim

kingstreet wrote: »

If you decided to remortgage to a BTL product, how much would you need to repay the existing mortgage and the other debts to which you refer?

If there isn't enough equity to do this and leave a decent loan to value to satisfy the lender's criteria, you might have no choice but to sell.

Do you really want to be a landlord, with all its responsibilities? What happens if you have no tenant for a few months? Could you pay the increased mortgage?

Hi Kingstreet, I have about £65K to pay off the mortgage and £15K other debts. Selling the flat would clear everything and leave me with about £50k to start again with.

I wouldnt mind being a landlord, I live in an area where rental properties are occupied practically 98% of the time (a holiday town). With the rent I could get in, I could cover the increased BTL mortgage and landlrod insurance.

One of the other flats here is already rented out full time privately, and another is rented out via the council who pay the rental every month, even if the property is unoccupied for any length of time.

Ladygrim

RenovationMan wrote: »

I think yo have to do the sums. Will the income from the rental cover your IO mortgage (you might have to get a BTL mortgage, so the interest rate could be higher), the landlords insurance and also have enough to cover your debt repayments. If the answer is a 'yes', then it could be a good option because as long as you focus on debt reduction, eventally your debts will be cleared and you could start putting the excess towards paying off the outstanding blance on the mortgage.

Once your finances are back on track you can then move back into your flat and enjoy reduced mortgage rates due to the overpayments you made during the letting period.

Good luck with whatever option you choose, it sounds like you've had a rough time of it.

I am hoping at some point in the future to be able to move back into the flat. As I live in a holiday county i could easily get a live-in job through the summer, and a bedsit for the winter months (doing seasonal work), as it is just me on my own to consider.

(And thank you for your support, )

Ladygrim

blueberrypie wrote: »

Have you considered renting out the second bedroom? This would increase your income, and you can earn up to £4250 a year in rent without having to pay tax on it.

I have a double bedroom and a single bedroom, we would have to share all other areas of the flat. Not sure how I would be with having someone else in the flat after living here with my husband.

kingstreet

Ladygrim wrote: »

Hi Kingstreet, I have about £65K to pay off the mortgage and £15K other debts. Selling the flat would clear everything and leave me with about £50k to start again with.

I wouldnt mind being a landlord, I live in an area where rental properties are occupied practically 98% of the time (a holiday town). With the rent I could get in, I could cover the increased BTL mortgage and landlrod insurance.

One of the other flats here is already rented out full time privately, and another is rented out via the council who pay the rental every month, even if the property is unoccupied for any length of time.

Ok. So you need around £80k on £130k. Let's round it up to £85k to be on the safe side.

At 65% loan to value, the lender is likely to need the mortgage interest, based on 5% interest rate, with rent at 125% of the interest payment.

£85k x 5% = £355pm x 125% = £445 per month minimum rent.

If that sounds ok so far, I'd suggest getting a good independent or whole market broker to find you the best offers for the mortgage.

As mentioned earlier, you'll need to check the issue of consent to sublet from the freeholder and the remaining lease term might be an issue for some lenders if under 70 years. The former sounds readily available, from the others you mention. Lenders normally only allow letting on a single AST, so the council idea might not be a goer in your circumstances.

You then need to familiarise yourself with the rules of being a landlord, then decide where you're going to live...

allyd75

I so need advice on my house too.

We are moving to austalia on a 4 year visa (hopefully to be permanent). House is worth £100,000 mortgage left is £34,000 with 12 years left. We will be renting out but have no idea how to do this. Should i just get a loan for £34,000 and pay the mortgage off then i am free to rent to whoever at the price of the loan, or should i go for buy to let mortgage? We would be using a property management company to look after it as we wont be here.

Any advice appreciated:-)