Buy to let - Interest not covered by rent.

mortgageowen

Hi

I have a few issues here, let me give you the background:

I am 22 years old, I have £36,000 deposit for a house and earn over £45,000/year with my partner.

The issue I have is not my income it is that the rent with all companies I have called has to cover 125% of the interest cost of the mortgage.

The property is already rented and the agreement would be moved into my name.

The rent is £520 a month, after fees it is £460. The average interest on a buy to let mortgage on the amount I am requesting to loan of £102,000 over 25 years is £562 at 125%.

They do not see income as an earning, although how would they expect costs to be covered if the place was empty?

We can easily afford to pay the difference in amount and also carry on saving each month.

Any hints or tips or specialist companies you know of?

Remember it is not because of my income, the income is not taken into account, it is just the rent has to be the same or more than 125% of the mortgage interest.

Regards
Owen

ACG

Thats a rule they have, why would you want to purchase an investment property that you (may) have to subsidise. Atleast with 25% on top it builds up a buffer for empty periods.

Save up a bigger deposit OR find a property that gives a better return/yield.

mortgageowen

I like the property and it has huge potential.

It is also not about the return on the investment. I am living in at university so the property would be empty. The other issue is that there is a 6month contract for rental which has already been signed from the current owner.

-Owen

kingstreet

mortgageowen wrote: »

The rent is £520 a month

Ok. So work it out from the opposite direction.

A lender like the Mortgage Works uses mortgage interest at 5% with 125% cover.

£520 rent divided by 125% = £416 interest @ 5% which means your maximum mortgage amount is £99,840. This applies to loans under 75%, so your maximum purchase price would be £133,000.

Be careful. Many lenders won't lend to you if you don't have a home of your own and insist on personal income of £30k to £35k a year over and above the rental income calculation.

I suggest you contact an independent or whole market broker as BTL is mostly centred on the intermediary market, rather than direct.

Dave_Ham

Also, just to add to the good advice above your age will be an issue with some buy to let lenders..

If indeed this house is a dream purchase (the figures do not unfortunately confirm this) then do seek specialist advice..

Good luck

mortgageowen

The property when modernised to a good finish has been valued at £675/month.

There is also the possibility to extend into the loft area and add two additional bed rooms. There is a substantial amount of garden space for extending to the rear of the property also.

It may not seem like a good investment on paper, but if you stepped into the house you would see the potential it has.

Are there no mortgage companies that work of 100% instead of 125? Maybe a specialist?

Regards
Owen

kingstreet

mortgageowen wrote: »

The property when modernised to a good finish has been valued at £675/month

You may have valuation problems if the property is not in readily-lettable condition.

Are there no mortgage companies that work of 100% instead of 125? Maybe a specialist?

It is the specialists who had these restrictions in the first place. High street banks and building societies who have joined this market have adopted the specialists lending policies.

Thrugelmir

mortgageowen wrote: »

It may not seem like a good investment on paper, but if you stepped into the house you would see the potential it has.

Then you need to inject further capital in the form of equity into the project.

A BTL lender is merely looking for a return on lending money not taking a risk on a development project. Which is what you seem to be suggesting.

mortgageowen

kingstreet wrote: »

You may have valuation problems if the property is not in readily-lettable condition.


It is the specialists who had these restrictions in the first place. High street banks and building societies who have joined this market have adopted the specialists lending policies.

The place is rentable, it is already rented out. The property is just at a low standard at this moment in time.

-Owen

mortgageowen

Thrugelmir wrote: »

Then you need to inject further capital in the form of equity into the project.

A BTL lender is merely looking for a return on lending money not taking a risk on a development project. Which is what you seem to be suggesting.

This will not be a development project, I will eventually be moving into the property in around 2 years time and will be changing the mortgage to a normal mortgage, this is when the deveopment will begin.

However the property is for sale in a rented condition and the contract cannot be revoked unfortunately.

Regards
Owen Smith

Simon_gloster

Hi Owen,

Lots of solid and true statements on this thread already.

Some of the big boys will need a minimum age, 25. That knocks you out with them.

Some have self funding calculations ie if LTV @ 75%, the rental must cover and 8% yield. Loan x 8% / 12 = what you must get in rent.

Minimum incomes possibly are there so that you are able to pay if any ental voids appear.

As mentioned, by not having residential mortgage may raise suspictions.

If you wanted a lender to go on 100% cover you MAY have to go into the jon confrming lending arena.