Cheapest way to borrow £20k for BTL

IvorBiggun

Hi

I am thinking of diving into buy to let. I have found an area I like (Grays, Essex - good yields for the south-east and not too far away) and nice 2 bedroom houses near the station are in the £150k-£170k range.
I have £100k in cash and the mortgage on my house has a further £40k "flexible" element letting me borrow at base rate + 0.99% (currently 1.49%) giving me £140k for very little interest. I will then need a further £20-30k to complete the purchase and furnish/fix any problems/gas safety check/insurance etc. I would be able to pay this back at in excess of £1k per month (up to £2k if we could also rely on the rent) so it would be short term.

A BTL mortage seems uneconomical in this situation. What are my best options? (I don't know my credit score but I imagine its pretty high).

Thanks in advance.

Wh05apk

Could you take a further advance from your main home?

IvorBiggun

Wh05apk wrote: »

Could you take a further advance from your main home?

Yes I could but what are the chances of them keeping the interest rate at 1.49% (base rate + 0.99% for ever)? I just naturally assumed they would want to get us off this deal ASAP and onto something more expensive (best current deals all seem to be BR+2% or more with arrangement fees for a limited time etc.).

Wh05apk

You should be able to keep your existing deal, but the top up would be on a new deal, who are you with? and what sort of mortgage is it?

Crashandburn

Could get a buy to let at 3.69% with a 1% arrangement fee and £99 booking fee. It would allow unlimited overpayments as it has no redemption fees. A 1% fee on a loan that size makes worth looking at.

As you say, any further borrowing from your current deal would possible jeopardize your low tracker deal.

Dave_Ham

As suggested, a top up on your residential home will probably come with lower fees. It is the fees that will be crucial, as obviously on this amount the rates will need to be hugely different to make a significant impact.

You may also want to look at Chafford Hundred, marginally more expensive although many more private tenants base themselves there.

All the best

IvorBiggun

Wh05apk wrote: »

You should be able to keep your existing deal, but the top up would be on a new deal, who are you with? and what sort of mortgage is it?

Alliance and Leicester. Took it out a while ago when interest rates were high and Labour was in power but election was coming (around 2008) so knew rates would drop. For 3 years it was something like BR -0.2% then reverted to BR+0.99%. Had a look around after the deal period but nothing close was on the market at that time (BR was by then 0.5%).

It's called a flexible mortgage and we have overpayed on it for quite a while hence the £40k.

IvorBiggun

Crashandburn wrote: »

Could get a buy to let at 3.69% with a 1% arrangement fee and £99 booking fee. It would allow unlimited overpayments as it has no redemption fees. A 1% fee on a loan that size makes worth looking at.

As you say, any further borrowing from your current deal would possible jeopardize your low tracker deal.

Any details of this deal and is it available for a loan this small?

IvorBiggun

Dave_Ham wrote: »

As suggested, a top up on your residential home will probably come with lower fees. It is the fees that will be crucial, as obviously on this amount the rates will need to be hugely different to make a significant impact.

You may also want to look at Chafford Hundred, marginally more expensive although many more private tenants base themselves there.

All the best

Chafford is in my search area already but nice to get more info on the area. By "top up" do you mean a second mortgage?

Dave_Ham

Sorry yes, I mean a further advance with the same lender as your mortgage.

It should mean a minimisation of all associated fees and therefore likely to work out cheaper. Aside from Solicitors fees working on behalf of lender, there would potentially be valuation fee, product fee, broker fee (as we would not earn much on the amounts involved from commission) and maybe an application fee.

First stop is ask the lender what they may do and on what rates and measure that against best of the rest - that you qualify for of course.

Good luck

Last bit of local knowledge in case you are not aware; certain parts of Grays and Chafford have a really difficult trip to get to the 2 train stations, so just be aware. Specifically Chafford the houses on station side go for a fair bit more sale price and rental income.

Leon_W

I think you need to look at the bigger picture. The way you intend on doing it doesn't sound very tax efficient to me as you will have a very small mortgage, tie up a lot of capital, and pay income tax on a great deal of unearned income.

Also, as you intend to repay the mortgage the tax situation just gets worse and worse.

Seek further advice before "diving" into BTL.