Re mortgage to buy Buy to Let??

fluffpot

I originally posted this on the house buying board, but think this might be the better board. Any thoughts, most welcome!

I've not ventured onto this board before so be gentle!

This idea might be pie in the sky, but I'm of the view that it's always good to check out your ideas, some of my best ones seemed crazy at first!

Anyway - here's the background

We (me and husband age 45/50, no kids) own a propery in London. Very conservatively I would estimate it's value to be around £500K. We have about £35K left on mortgage. At the moment we think we will live in London for say another 10 years, but ultimately would like to relocate to the south coast (the cheap end!)

My question is: would it be possible to re mortgage to buy a property in our chosen location and let this out with a view to moving there in say 10 years and then letting out our London home? Current rental income for the London property is around £2500 per month.

Is this even a good idea?

Having had a very quick look, covering the mortgage on a BTL in the area we like would be pretty marginal. Looking at a purchase price would be around £200K

How much cash deposit is required in this situation?
We are both self employed - would this make a difference?
Ideally I would like the shortest mortgage term possible but given our ages would this be imposed anyway?
How about interest only mortgage to start with and then swap to repayment when we move - using the much higher rental income from the London home to pay off the mortgage more quickly?

Sorry for all the Q's! Any feedback much appreciated. Just to know if it's a no go or worth looking into further

It goes without saying of course that I we decided to investigate further we'd get some financial advice!

Many thanks

Dave_Ham

Hi there and welcome...

Your last sentence is the most salient, if you try and do this directly without some financial advice it could be costly.

Its hard to generally advise without all of the facts and a full fact find, but personally the cheapest way for you to raise finance would be on your existing property, as it is residential.

Given your loan to value, you easily expect an interest rate of 2-3.5% and you would qualify for repayment or interest only.

Add in then you can buy the house outright gives you a better negotiating tool and less restrictions from any buy to let lender about holiday letting/you having holidays/longer unoccupied etc. as you will own outright...

When the time comes to downsize and move, you can either sell the London home or then convert to buy to let and take the rental income - whatever mortgage remains.

It gives you more power, you do not need to find a deposit as you use the equity and you still have the power when you retire and options.

Worth noting it obviously depends what type of mortgage you are currently on with rate etc. as to achieve the best rates a new provider would want first charge. Maybe check out what rates your existing lender would advance you on.

Being self employed is no issue until, unless you pay yourself the absolute minimums and then income multiples would be an issue on the above, optimum plan..

All the best, shout if you have any further questions but do seek formal advice on this...



Dave

fluffpot

Hello Dave

Many thanks for taking the time to reply. That's very helpful.

The other half's concern is I think that if the buy to let property yields are not at 'commercial' rates (ie as viewed by someone doing it to make £) then is it worth doing? I reckoned that if they were 'break even' at least then it might as it would enable us to move in 10 years (or whenever) without selling the London home. I'm not even sure what a decent yield % is at the moment?
Will find out more info on current mortgage and post back.
Thanks again
Fluff

Dave_Ham

Hi and no problem..

I agree with the logic behind that, but if you can benefit by more initially on non-commercial terms surely that makes sense?

Hope that makes sense...

Thrugelmir

fluffpot wrote: »

My question is: would it be possible to re mortgage to buy a property in our chosen location and let this out with a view to moving there in say 10 years and then letting out our London home?

As an observation. What makes a good BTL property has a different set of criteria to what makes a home. So consider a property which isn't the finished article if you intend letting for 10 years and budget on spending some money in the future when you take residence. .

fluffpot

Yes, we were thinking that! - perhaps a property currently in 2 or 3 flats which we could convert back to 1 home or 1 large flat and 1 smaller for letting. I'm in the building trade (sparks) so know what this entails!

fluffpot

Hi there
Back with some more info!

Current mortgage has 6 1/2 years left and balance is just around £37K. Repayment with Nationwide, current rate is 2.50%

Joint income probably around £50K before tax.

Would we get tax relief on the BTL mortgage interest? Sorry to sound dumb, but what would this mean in practice?

Thanks again for all input

Q: Would there be any adv/disadvantages to buying a property that is already let to tenants? Obv would need to check tenancy agreements/contracts

Thrugelmir

fluffpot wrote: »

Would we get tax relief on the BTL mortgage interest? Sorry to sound dumb, but what would this mean in practice?

On a simplistic level. If you received £10k in rent and paid £6k in mortgage interest. Then £4k of income would be subject to tax. (£10k - £6k).

In reality more complex than this. Ask questions on the house buying forum. As there are some clued up people on this subject. They'll point out the downsides of tenants as well!

fluffpot

Thanks for that. Yes, I know all about tenants! I used to rent out my first home - 3 rooms when I was living there to help pay the mortgage (interest rates 15%!) and then when I moved to London I let the whole house. JUST managed to stay out of negative equity when I sold it 2 years later...
Happy days!

Simon_gloster

My understanding is if you buy a property with tenants in, it must have vacant possession on completion from a lenders point of view. I'm happy to be put wrong, but was the case when I was underwriting.

£50K net profits for april 2011 should be ok for the loan you want but remember lenders now will view fluctuations as a negative if on the downward trend and may not take your most recent year if it has increased (possibly average it over the last 3 years).