Need advice on Buy-to-let

Cornish_Gareth

Greetings everyone,

Myself and my wife are looking at buying to let and are not exactly sure of the best way to tackle this. We have a £40K mortgage on our current property which is probably now worth closer to £130K so I understand we have equity we can use here. We have our eye on a property worth around £90K. What would be the best way to go about purchasing this. Would it be interest only on the property we have our eye on? Would we remortgage an amount on our current property to put as a deposit on the buy to let property and then get another mortgage for the remainder of the mortgage on the buy to let?

If someone could break it down to me in simple terms it would be much appreciated. Rates, interest only, how much we could borrow, monthly repayments,

Thanks in advance

Cornish Gareth

GMS

Work on a deposit of 30% needed as a first time landlord. Could be a bit less but this will give more options.

You would need a minimum income of £25,000 for most lenders.

Rent would need to be 125% of the mortgage payment based on interest only using 6% as a rate (approx).

You would need to raise the deposit from your residential property if you haven't got it elsewhere with a Buy to Let mortgage for the rest.

Interest only is acceptable for a BTL.

Best to speak to a broker as many BTL mortgages are broker only.

Look out for high arrangement fees. Often a higher rate with a lower fee can be a better deal.

Cornish_Gareth

Thanks GMS

Any other advice/experience much welcomed people.

GMS

What more do you want to know? Quoting rates and lenders is not helpful as you need to find the best solution for your own situation.

Buy to Let is best done through a broker, or at least comparing a broker recommendation with what you can find yourself.

Cornucopia

Interest-only is easier from a tax perspective, too. The entire BTL interest is tax deductible (from rental income) for Income Tax.

hamster2013

i have 2 BTL properties - both bought with 30% and 40% deposits
indeed, the rental income was around 150% of the mortgage repayment

i did both with a broker, as i was not living in the uk back then, but now that I am here, i would just walk into a branch and have a chat with them

start making a file with all your documents necessary:
1. pay slips
2. bank statements showing deposit
3. proof of address/id
4. home mortgage repayments (annual statements)
5. details and statements of any debt you have - or income you have other than salary
...etc

now, best way to approach is depending on what your afordability is.
remember, rental income is subject to tax - plus you will need to keep monies save for the unexpected expenses (i had to change boiler in the first year of my purchase - plus change kitchen after 3 years on the other one)
however, the expenses can be offset against rental income, and this includes the interest element of the mortgage.

so lets assume:
proprerty price = 90k
solicitor fee's + bank fee + valuation..etc = 2k (rounded up to what it would be max)
refurbishment / or furnishing (if you want to rent furnished to students etc) = 3k
total needed= 95k

deposit 30% = 27k
cash needed = 27+5 = £32k
how you get that will depend on how much you have saved - how much interest you are earning on that saving, and what rate your bank will remortgage your current house at - i would not put a larger deposit as you want to maximise your interest repayment for the BTL.

so you take a loan of £63k at 25years at 6% - you would pay monthly £405 to the bank
you would therefore need to ensure you can rent that property for at least £600
so lets say you manage to get a rental income of £600 / month
that is £7200 / annum (assuming it doesnt stay vacant - which it will be the first month whilst you refurb or furnish)
in the first year, you would have paid the bank £3750 in interest you can deduct of that income before its eligible for tax.
that makes your 'rental income' = £3450 that you deduct all other expenses
ie for example letting agent fee of 1 month - thats £600, if its a flat, the maintenance charges, asusming £30/month, thats £360, the time you spent managing the tenants at a reasonable rate - of lets say 20 hours, at £10/hour - thats £200
and other bits and pieces that you need receipts for, to lets say £300
so total is £1160

therefore, you declare rental income of £2590
assuming you are on the 40% tax band, i.e you earn over £32k/annually, you would end up paying around £1000 to the taxman, and pocket therefore around £1500 end of the year.

now hope this doesnt sound depressing - as dont forget , you are building up equity in the property you purchased.
obviously, speak to an accountant, i have one who i pay £80 / annum + a nice dinner, to do my accounts so its worth it and free's your mind.
if you and your wife are purchasing, obviously the income is devided in two, so of the £2590 - half is yours to pay tax on, half is your wifes to pay tax on. this can be useful if she doesnt work and in which case you might consider buying 100% under her name so that you max her tax credit.

anyways so many other things to consider - how long is the lease if its a leasehold, what is cost of renewing it, if its a house, expect maintenance - like roof leaks or other problems
ensure you take good guarantees and deposits and always protect the deposit with DPS or similar as otherwise you can be fined.

best of luck

Thrugelmir

Lenders may not be keen on the (a) the purpose of the equity withdrawl nor (b) the source of the deposit.

Leveraging with debt has become rather outdated. Since the crash of 2007 changed the rules and the extent of the banks problems were uncovered.