Re-mortgaging & letting after 6 months

SpaceCadet

I'm nearing the end of the fixed term of my mortgage with First Direct and planning on renting the flat out 6 months after my existing mortgage reaches the end of the fixed term.

Should I switch immediately to a buy-to-let mortgage or can I switch to a normal mortgage and then switch again when I actually rent the flat out?

I've had a quick look at mortgage rates and the existing deals on buy-to-let are better than the rate i'm currently on so I'm keen to move to a new mortgage as soon as possible.

I'm so confused about it all!

Senior_Paper_Monitor

Far more information (LTV, where you will be living, income, credit status - medium term plansetc) before a sensible suggestion can be made

kingstreet

FD does not offer consent to let, so you'll have to move to a buy to let product elsewhere.

Leave it on FD's standard rate (if that's what you follow-onto) until you're ready to let the property, then move to BTL just before.

As SPM says, your circumstances will dictate what's available to you, but in principle, you'll need;-

20%+ equity, plus a deposit if buying on
rental income of 125% of monthly mortgage interest assuming c6% rate
consent to sublet from freeholder if lease requires it
ability to cover high arrangement costs of around 2%.

SpaceCadet

Thank you for your responses it's much appreciated!! I will try to answer your questions.

Guessing the current value of our flat I believe we should have a LTV rate of 60%. This is because we intend on renting and not buying ourselves in the immediate future. Ideally we would like to try to save for another home but that is probably unrealistic and we'll have to sell at some point in order to buy again. We plan to rent something of similar value to our current mortgage and service charge amount.

Our credit status should be ok but not brilliant - I haven't checked it in 3 years.

I am now working part-time, whereas when applying for our first mortgage I was working full-time, I'm not sure if that makes any difference to the mortgage application? The current loan we have on our flat is £175,000.

I believe the net annual income from rental would be approximately £18,720. We pay roughly £3,000 a year in service charges and ground rent. Attempting to use an online landlord yeild calcultaor, I believe my gross yield considering all acquisition costs (incl est on decorating and legal fees and service charges) is 5.03% (assuming no rent lost in void periods since we will stay in the flat until it is rented).

The rate we're on currently is 4.09% but it is offsetting too. I'd have to check with FirstDirect what the variable rate terms are after our fixed period completes. This is why I'm wandering if I should just try to move directly onto a buy-to-let mortgage even though we aren't letting it for some time.

I have attempted some basic calculations and I do believe it should be viable to rent - i.e. the rental income should exceed the total costs. I also tried the calculations using a 6% mortgage rate and 20 years on the loan and it worked out with an overall balance of £41 assuming I'm correct in my calculations of tax and other costs! I'm hoping we could get a much better rate though. We would also have some additional funds for other costs in setting it all up.

A local estate agent assures me that flats in our development are always in very high demand and I do believe that is the case however there is a risk that things will change since our building is located quite closely to the olympic park and many more flats are becoming available so there is a risk we could struggle to rent it out quickly and to good tenants. If that were the case we would stay in the flat and wait for tenants.

If we were able to get approved for the HSBC Lifetime Tracker Special Fee Free at 2.99%, would we be able to end the mortgage within 6-8 months of starting it? There are no exit fees or set-up fees so I presume this would be a great option if that is the case?

Thanks again for your help!

SpaceCadet

I have just spoken to first direct and I would go onto the standard variable rate and it would continue to be offsetting. I've calculated that this would bring back monthly interest charges that are very competitive (roughly 3.3%) and much better than moving straight to a buy-to-let mortgage. So I think my best option probably is to stick with my mortgage until I start looking for tenants.

Thanks again for your help! If you do have any other thoughts though please do post them.