BTL on first mortgage?

the_philosopher

Hi there,

I currently live in accommodation provided (at low rent) by my employer, and I have about £50k in savings. I am thinking of using the savings to buy a property worth something in the region of £160k-180k to let whilst I live as I do at present.

I would be going for a fairly recently-built (<20 yrs old) 1-2 bed flat in a fairly well-to-do university city, so reasonably good prospects of tenancy and not too much likelihood of high unexpected maintenance costs.

The trouble is, I have never had a mortgage before, and I get the sense that banks do not want to let first-time buyers do BTL. However I see myself as perhaps a more likely option than some because I have a steady job paying around £24k (as does my fianc!e - we are intending to marry in about a year), 30% looks like a fairly reasonable LTV, and the flat doesn't look likely to turn into a liability. I haven't checked the official data, but my credit history should be pretty good.

Do people think that I'd stand a reasonable chance of being able to get such a mortgage? Or would it likely be too difficult to persuade the bank to lend to me? Any thoughts appreciated.

TP

kingstreet

Several issues;-

- no owned residential property
- some lenders like a personal income of £35k+
- rental income required 130% of mortgage interest at around 7%pa
- deposit of 25% or more.

I'd suggest you speak to a decent whole market broker about this. He'll need to look at the options for you and your individual circumstances.

Don't forget to study the legal implications and the responsibilities of being a landlord!

the_philosopher

Thanks for the quick reply!

- rental income required 130% of mortgage interest at around 7%pa

Can you explain what this means?

- deposit of 25% or more.

Actually my deposit would be over 25% if I buy within the £160-180k price range. Are you saying that this would be a problem?

Many thanks :-)

Thrugelmir

the_philosopher wrote: »

Can you explain what this means?

£130k mortgage.

At 7% annual interest = £9,100

£9,100 * 125% = £11375 Annual gross rental of property

or £948 per month.

bigadaj

You need to do quite a bit more research.

Reference to the Rental income is that if you had say a hundred thousand mortgage, then at seven per cent interest only this would be seven thousand per year, lender would require regular rental income of 1.3 times this, so nine thousand per year, or about seven hundred and fifty per month.

Remember that even if you can get the money you could end up with voids, when you'll need to pay the mortgage yourself, and also maintenance. A flat is always more complicated because it is leasehold or possibly shared freehold, so you are not independent.

the_philosopher

Yes, I do need to do more research. Is 7% really a typical rate? Is that because it's a BTL mortgage and the lender wants a cut? BTL mortgages are certainly a little bit more expensive, but just on a quick look around they don't seem to be quite as expensive as that...

Thrugelmir

the_philosopher wrote: »

Is 7% really a typical rate?

No. Lenders use a notional rate to stress test the application.

Interest rates are going to rise in the future.

ACG

I agree with thrugal.

The main issue you have is that your a first time buyer.
However, you have some things in your favour so it could be worth speaking with a broker who can run it by some lenders to see if some would be prepared to look outside their normal lending criteria.

I live in manchester and uni houses even with the fee rises are still fully sold out or atleast it hasnt had that much of a negative impact - whether or not that will change in a few years is another matter but only time will tell.

Id definately give it a try, you have nothing to lose really.

Southernman

I live in Manchester and a 2 bedroom flat in my area goes for around £800-£900p.m with car parking.

Whilst i doubt students could afford that, it would be snapped up by a working professional.

rochja

Sounds like the next 5 years of your life could see big changes - marriage - ?kids? - relocation etc. Nothing short of a reappraisal of aspirations will come with the marriage. If you tie your income into a BTL you limit your options. Letting is not all fun and easy money either. Letting agents are generally c##p and swallow 10% plus VAT of your rental income, and managing things yourself requires a presence by you and a good working relationship with a general handyman. Add to that the complication of your tax affairs, the possibility of complications with managing agents on leasehold properties etc and the availability of better returns elsewhere and you may well decide to hang on to your money ready to buy a place of your own. God knows the way this country is going if you are young and own your own home you have joined an elite club and laid foundations for generations of future little philosophers

property.advert

Plenty of good advice regarding the maths but you should really be looking first at your own situation, as has been advised. If you believe you may need a property for your own use then this is where you should concentrate your efforts. Selling your BTL to release funds only to pay tax and costs on your own property within a short timeframe is daft.

Buying at £180k and borrowing £130k at say 6% cost you £7800 in interest each year and a minimum of £5000 to get started. Selling will cost you another £5000 or so. Interest lost on your deposit of £50k is about £1500. Let's just equate all other costs to £1500 for ease.

So just to get into and out of such a property you have costs of £10,000 and annual expenses and expenses of £10,800. You cannot recoup those costs in year one and even over 5 years, your equivalent expenses go up to £12,800 which would require a yield of 7.1%. At this point you have not made a penny and most likely your expenses would have increased.

Of course, if property prices where you buy go up 10% per annum, you'll make substantially on that but that is a long term proposition because you can't break even in the short term doing this.