We’d like to remind Forumites to please avoid political debate on the Forum.
This is to keep it a safe and useful space for MoneySaving discussions. Threads that are – or become – political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.
PLEASE READ BEFORE POSTING: Hello Forumites! In order to help keep the Forum a useful, safe and friendly place for our users, discussions around non-MoneySaving matters are not permitted per the Forum rules. While we understand that mentioning house prices may sometimes be relevant to a user's specific MoneySaving situation, we ask that you please avoid veering into broad, general debates about the market, the economy and politics, as these can unfortunately lead to abusive or hateful behaviour. Threads that are found to have derailed into wider discussions may be removed. Users who repeatedly disregard this may have their Forum account banned. Please also avoid posting personally identifiable information, including links to your own online property listing which may reveal your address. Thank you for your understanding.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
The Forum now has a brand new text editor, adding a bunch of handy features to use when creating posts. Read more in our how-to guide
Investigating buy to let
Paxtonios
Posts: 7 Forumite
Hello
I'm new to the forum and looking for advice. I've outlined my circumstances below:
My current residential property was purchased in 2005 for £135,000 and has been on the market for sale for ten months, originally for £140,000, currently for £132,500. The outstanding mortgage is £124,000 approx with NRAM, all secured aside from £800 approx unsecured. I have had several offers for the property, none of which were sufficient to repay the outstanding mortgage, so I rejected them.
The property I wish to purchase will cost £200,000 and I have £22,000 capital already saved for a deposit, with sufficient additional funds available to cover further costs of moving if no equity is forthcoming from my current property.
I am considering taking my current property off the market and renting it out instead so as to avoid making a loss. I have investigated a short term consent to let but this won't work as the potential rental income will not achieve the necessary 120% of the current mortgage payment. If I was to convert the mortgage to buy to let at 75% LTV on capital and interest terms the rental income would be high enough to make this viable, but I would have to provide a deposit of £31,000.
My question is: would it be possible to use an unsecured loan of £25,000 along with further savings of £6,000 to provide this deposit? My household income is just over £4,000 net per month so on paper the two mortgages plus associated insurances less the projected rental income would only account for around 30%; with the loan repayment included this would rise to around 37.5%.
I'm new to the forum and looking for advice. I've outlined my circumstances below:
My current residential property was purchased in 2005 for £135,000 and has been on the market for sale for ten months, originally for £140,000, currently for £132,500. The outstanding mortgage is £124,000 approx with NRAM, all secured aside from £800 approx unsecured. I have had several offers for the property, none of which were sufficient to repay the outstanding mortgage, so I rejected them.
The property I wish to purchase will cost £200,000 and I have £22,000 capital already saved for a deposit, with sufficient additional funds available to cover further costs of moving if no equity is forthcoming from my current property.
I am considering taking my current property off the market and renting it out instead so as to avoid making a loss. I have investigated a short term consent to let but this won't work as the potential rental income will not achieve the necessary 120% of the current mortgage payment. If I was to convert the mortgage to buy to let at 75% LTV on capital and interest terms the rental income would be high enough to make this viable, but I would have to provide a deposit of £31,000.
My question is: would it be possible to use an unsecured loan of £25,000 along with further savings of £6,000 to provide this deposit? My household income is just over £4,000 net per month so on paper the two mortgages plus associated insurances less the projected rental income would only account for around 30%; with the loan repayment included this would rise to around 37.5%.
0
Comments
-
Not a very good reason for turning down an offer. The buyer does not have to clear your mortgage whatever you may want.Hello
My current residential property was purchased in 2005 for £135,000 and has been on the market for sale for ten months, originally for £140,000, currently for £132,500. The outstanding mortgage is £124,000 approx with NRAM, all secured aside from £800 approx unsecured. I have had several offers for the property, none of which were sufficient to repay the outstanding mortgage, so I rejected them.Few people are capable of expressing with equanimity opinions which differ from the prejudices of their social environment. Most people are incapable of forming such opinions.0 -
Not a very good reason for turning down an offer. The buyer does not have to clear your mortgage whatever you may want.
It doesn't appear logical to me to accept an offer of £117,000 and leave myself with a £7,000 shortfall; better to wait for a higher offer, try the route I described above or stay as I am for now and try again in future, no?0 -
Use your savings to pay down your mortgage and build more equity.
Little point in earning less interest on your savings than you are paying on your mortgage.
In the meantime keep the house on the market.0 -
It doesn't appear logical to me to accept an offer of £117,000 and leave myself with a £7,000 shortfall; better to wait for a higher offer, try the route I described above or stay as I am for now and try again in future, no?
THat is a different issue and you are probably right. But a house is worth what its worth, you should know how reasonable the offer is and the reason for turning it down is that its not a fair offer. Saying its not enough to pay off the mortgage is absurd in my view.Few people are capable of expressing with equanimity opinions which differ from the prejudices of their social environment. Most people are incapable of forming such opinions.0 -
Welcome!
If the gross rent is not 120% of the mortgage payments how does the net rent measure up - taking into consideration increased interest rate, income tax, capital gains tax, service charges, ground rent, buildings insurance, landlords insurance, safety checks and repairs, letting agents fees, voids between tenants, tenants who do not pay or trash the place ..... Are you sure you won't be making a loss every month?
http://www.moneysavingexpert.com/savings/pay-off-debts
http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12Declutterbug-in-progress.⭐️⭐️⭐️ ⭐️⭐️0 -
THat is a different issue and you are probably right. But a house is worth what its worth, you should know how reasonable the offer is and the reason for turning it down is that its not a fair offer. Saying its not enough to pay off the mortgage is absurd in my view.
None of the offers I have received have met the figure I would consider to be fair; coincidentally these offers also fell below the amount required to clear the outstanding mortgage. I stated that the offers I received were below the mortgage balance primarily to illustrate the large gap between asking price and offers received; sorry if this wasn't clear.0 -
Welcome!
If the gross rent is not 120% of the mortgage payments how does the net rent measure up - taking into consideration increased interest rate, income tax, capital gains tax, service charges, ground rent, buildings insurance, landlords insurance, safety checks and repairs, letting agents fees, voids between tenants, tenants who do not pay or trash the place ..... Are you sure you won't be making a loss every month?
As I understand it I cannot obtain the required mortgage unless gross rent is at least 120% of the mortgage payment. If I convert to a buy to let mortgage at 75% LTV the projected gross rent would achieve 150% of the mortgage payment, even allowing for the increase in interest rate. No ground rent applies, service charge is minimal, switching to landlords insurance would mean a slight increase on the existing insurance. I would intend to allow a set amount for repairs and maintenance on a monthly basis that would be enough to deal with most eventualities (the property is in immaculate condition as of today). I would use the same estate agent I currently market the property through, and they cost 10% of rental income. I don't envisage having to pay any CGT, Schedule A income tax would be charged at 20% of any net profit, which at this point would be about £10, assuming repairs to the full value set aside were undertaken during the financial year and taking into account 10% wear & tear taken directly from the gross profit. That just leaves non-paying tenants; I accept that this is a possibility but the property is in a high demand area and those properties in the same building that are let to tenants haven't been empty for more than a week at a time within the past seven years (I discussed this with the landlords recently). Overall I'm confident that I can achieve at worst a break even point if I can first convert to a 75% LTV buy to let mortgage, but to do this I need another £31,000.0 -
Most lenders ask for rent to be 125% of monthly mortgage interest at around 6% per annum.
How does it stack up then?I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.0 -
As I understand it I cannot obtain the required mortgage unless gross rent is at least 120% of the mortgage payment. If I convert to a buy to let mortgage at 75% LTV the projected gross rent would achieve 150% of the mortgage payment, even allowing for the increase in interest rate. No ground rent applies, service charge is minimal, switching to landlords insurance would mean a slight increase on the existing insurance. I would intend to allow a set amount for repairs and maintenance on a monthly basis that would be enough to deal with most eventualities (the property is in immaculate condition as of today). I would use the same estate agent I currently market the property through, and they cost 10% of rental income. I don't envisage having to pay any CGT, Schedule A income tax would be charged at 20% of any net profit, which at this point would be about £10, assuming repairs to the full value set aside were undertaken during the financial year and taking into account 10% wear & tear taken directly from the gross profit. That just leaves non-paying tenants; I accept that this is a possibility but the property is in a high demand area and those properties in the same building that are let to tenants haven't been empty for more than a week at a time within the past seven years (I discussed this with the landlords recently). Overall I'm confident that I can achieve at worst a break even point if I can first convert to a 75% LTV buy to let mortgage, but to do this I need another £31,000.
Net profit of £50 assuming no voids or tenants that don't pay rent? Do you know how long it takes to evict a tenant through the courts for non payment?
Have you factored in letting agents finders and admin fees - 10% is usually management only? Who is paying for lodging the deposit, check in and check out, drawing up ASTs and so on? Tenants usually pay for referencing and credit checks.
You should factor in voids, it's bad practice to have tenants back to back, that leaves you no time for tenants who don't move out when you think they will (yes even when they serve notice!), for cleaning repairs and maintenance. Also remember tenants do not have to permit viewings, if you don't have viewings you cannot line up a new tenant.Declutterbug-in-progress.⭐️⭐️⭐️ ⭐️⭐️0 -
kingstreet wrote: »Most lenders ask for rent to be 125% of monthly mortgage interest at around 6% per annum.
How does it stack up then?
125% at 6% doesn't work, so as stated I'm aiming to achieve 150% at a similar interest rate by obtaining a 75% LTV buy to let mortgage.0
This discussion has been closed.
Confirm your email address to Create Threads and Reply
Categories
- All Categories
- 354.3K Banking & Borrowing
- 254.4K Reduce Debt & Boost Income
- 455.4K Spending & Discounts
- 247.2K Work, Benefits & Business
- 603.9K Mortgages, Homes & Bills
- 178.4K Life & Family
- 261.5K Travel & Transport
- 1.5M Hobbies & Leisure
- 16.1K Discuss & Feedback
- 37.7K Read-Only Boards