A drop of advice appreciated

Vlm1986

hello,

looking at moving areas and considering renting our property out and buying another.

current propery worth £180000. Mortgage £127500 on 3.89% offset. rental income in region of £900 before fees etc.

property we would like to buy asking price £190000, (with FOUR agents) due to new build development opposite - doesnt concern us.

to change our mortagage to buy to let only incurs £100 fees as equity high enough. i appreciate there are fees involved with getting a renter etc,

currently pay our £760 mortgage overpaying making it £1000 for last 2 yrs.

have about £20000 savings for deposit do looking for 90% mortgage to start. combined wages about £40000. no debt

would this be possible to get another mortgage? does the strenght of your equity help towards a new mortgage?

any advice welcomed. we are aware we would be loooking at a high intrest rate if we can get another mortgage. but sentimentally dont eant to sell this property if possible, but would like to move areas....

thanks in advance and sorry fro the long rambling post

BitterAndTwisted

Sentiment has no place when you're running a business. Which is what you would be doing if you're going to become a landlord.

Not only are there agency fees to pay when you have a tenant in the property, there will be tax due on the rental-income as well. Among many other things.

Regardless of the mortgage question, which I cannot help you with, only buy a second property if you can see the first purely as a business asset and have the cash reserves necessary to weather any possible storms. Like the legal fees available to evict a non-paying tenant who hasn't treated the place as you would have, all the while being able to cover the BTL mortgage until you get a new tenant

Werdnal

I agree with above - unless you are prepared to hand over total and exclusive possession of this property you are so "sentimentally" attached to, to a complete stranger who will have no similar emotional connection to the property, then don't do it!

If you are looking to rent, you need to be able to let go of any emotions over what the tenants may or may not be doing in your former much loved home, and treat is purely as a business asset. Can you do this? Can you let go? Can you ignore the fact that they may not look after it?

Also, would you actually be able to afford 2 mortgages if the property was empty, tenant stopped paying etc? Putting your own home at risk if you are not financially stable enough to meet both mortgage costs may not turn out to be the long term investment you are hoping for. Even a non-paying tenant can take several months or more to evict - several months when you are not going to get any more rent!

To understand all the legal responsibilities of becoming a LL:

http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12

Vlm1986

thanks for your reply.

we would sell it if not viable, but its near family and a very nice area if we didnt like the move.

not looking to make huge profits but keep it for when we get older (im 25)

appreciate that it would still need maintaining and may not be looked after as well i as would like, but hey ho thats the name of the game.

the tax is payed on 'profit'of the rent ie, after the mortgage is payed. is this right?

after speaking to local estate agent would be looking at £396 fees vat inc in price and 8% monthly fees. insurance of £120 annually to cover no payers (when property occupied).

in a nice area, large house in prime location to house and schools sales and rentals come and go very quickly.

only thought of it yesterday, so could all just be a whim, but one worth considering...

thanks again fro your reply

Vlm1986

yes, we were going to sell anyway, so can happily 'let go' - i realise it would never be my house again, well as it is now, i think my main reason for keeping it is its near all my friends and family, and were looking to move away. not far, but far enough. and we cross into a rival postcode... hahaha

thanks for the link, ill have a good read.

weve never had debt and i wouldnt want to really screw ourselves over financially which is why im asking the questions on here really. just so i know whats really involved.

the other thing we considered was selling this to buy another one and buying a smaller property as btl with much smaller mortgage.

all ideas to consider and look into. thanks for the replys people

BitterAndTwisted

Vlm1986 wrote: »

The tax is payed on 'profit'of the rent ie, after the mortgage is paid. is this right?

Nope. You can only offset the mortgage-interest against the rental-income for tax-purposes. There are other legitimate expenses you can offset as well, however.

My own feeling is that this is not something you should be considering on such a modest salary, even if you could raise a second mortgage. Sell it, take your equity and savings to put on the new property and "only" have a £120k mortgage on the new one.

Vlm1986

thanks fro your reply.

will look further into it taking all options on board, as not looking to get rich quick, or screw ourselves over either!

go_cat

Your mortgage provider may put you on a higher rate i.e BTL mortgage. Do your maths add up then ?

Graham_Devon

You are going to have mortgage commitments to 300k worth of debt, which is OK if you have a tenant....maybe something to think of if you don't have a tenant or have issues with none payment.

You say the mortgage is currently at just shy of 4% on the house you intend to go BTL on. You wou;dn't be left with much profit after the rent is paid...so what happens if interest rates rise?

At 6% average across the two mortgages, you will have mortgage commitments at just under 2k a month....plus 2 lots of insurance, bills etc in the event you don't have a tenant.

That's without interest rates rising.

Up to you. But those sorts of comitments based on income that takes two of you being in constant jobs would scare me. However, others have got very rich from taking those chances.

AlexMac

If it's any consolation, in 15 years as an amateur landlord, I've not had a bad tenant, although I do use an agent to find and check tenants (landlord/bank/credit/employer refs and deposit) to let 'em know we're businesslike. Then I do the get-in and day-to day management, so I can save the usual 10%+ pa fee and also look 'em in they eye and stress that I will fix anything the day it breaks if they do reasonable stuff themselves (like light bulbs) and let me know of problems pronto. And it's been a good deal financially, with never a void period, and given that as said above, you offset mortgage interest, maintenance, ground rent, fees, insurance etc against rent so pay modest tax. Although you have to fork out £2k immediately if the boiler dies and a few hundred when the fridge/dishwasher expires.

In my case, however, the cost to buy was much lower and I've also massively benefited from capital gains- a £35k flat now worth £175-ish; you'll be into much more risk and won't benefit from the over-inflated gains in values of the 1990's, but you're young enough for there to be some gains over time.

And I'm also old enough to remember when interest rates topped 10%pa; the current single digits seem set to last a few years but a disaster scenario if you're on a low margin would be if the interest rate tripled.

And also I bought a very lettable 2-bed flat with low cost but high rental value in a London suburb near excellent commuting links; a family house might not have such high rent-to-value ratio. If you really want to get into BTL, maybe consider starting clean with a similar property? Although this ignores the emotional consideration that you seem to want to retain your former home as a safety net, or are maybe nervous about the prospect of selling at an acceptable price? Either way- so seem to be being fairly hard headed and open to advice, so go for it!

Good luck with the decision

Vlm1986

Go cat- because of our equity mortgage lender won't increase cost of intrest rate on BTL so fixed until July 2017 at 3.79% (cheaper than I thought)

Absolutly looking at the prospect of no tenant, as we're close to town/motorway links/ local airport/ good school would hope to be desirable to longer term tenants, the rented property's near us keep there tenants years , although of course that's the luck of who you get.

We also realise that prices won't shoot like the 90's, but we're looking much more long term (it's going to be a looooog time before the government let me retire)

Alexmac thanks for hen reply, yes more for a safety net - our property has been valued at 35k more than we bought for in 2008, so not a bad profit in these times, especially when most in our area have seen a drop. (we renovated an old house to a high standard - the estate agent told us he was surprised by it )


Looking at a selection of property's tomorrow some cheaper that need a bit of love, there more pricey which would need a definite sell.

Hopefully a few viewings will give us more of an idea of which way we want to go.

We've worked hard since the days when the mortgage £2 over the cost of my monthly wages, have done up a house and saved along the way, not expecting to turn into millionaires overnight, but neither do we want to get into a position where we loose everything weve worked so hard for. Graham Devon, as you say some people take risks . We will be weighing them up to see what we can do.

But tomorrow, I will be having a little nosey around 4 property's to see what how big an estate agent can really make a property look....one hose has 4 estate agents on it, the driveway in one looks like the entrance to the beckhams home, we drove past it, would be lucky to get my golf on it