Mortgage buy to let..

Buzzz

Hi,
I have £25k which i'm fairly sure I would like to invest into a property rather than in savings, although this area is totally new to me.

I have requested the PDF download on mortgages although it hasn't been sent through yet, so have a few questions..

I'm not currently on a mortgage although am thinking of buying to let as I am living elsewhere, but don't really understand how these mortgages work. I understand you just pay the interest?

Do the mortgages tend to be over any length of time in the same way you would choose another mortgage?

What happens if I change my mind part way through the mortgage term and want to live in the property?

Does the depost on this type of purchase tend to have to be a certain % amount?

Like I say, this area is totally new to me and i'm happy to research, but haven't a clue where to start and, as you can see, don't know half as much as I need to so would welcome any help / pointers

Thanks

Buzzz

Hmmm, just seen the house buying and letting forum so not sure if this should go in there. I'm sure i'll be re-directed if so

kingstreet

If you do not own a property, you will find there are limited lender options open to you. Typically, you'll need to put down a 25% deposit and the rental income will need to be 125% of the monthly mortgage interest payment, assuming a rate of 6%pa.

Some lenders have high personal income minima, with some working from £20k, others from £35k or more.

The fees for BTL products tend to be higher too.

Moving in to a BTL property after letting it is fine.

Interest only mortgages are the norm for BTL as only mortgage interest is allowable as an expense for tax purposes, but you should consider an exit strategy - how will you pay the mortgage off?

Do you understand the legal responsibilities and possible headaches of being a landlord. You may wish to explore these further by posting on HBR&S as well as on here.

Based on your deposit, assuming you have no further funds to cover fees, you'd be able to buy for about £88,000 with about £22k deposit and £3k to cover the fees and costs.

This means you'd need a 75% mortgage, £66,000. The rental income requirement would be £412.50 using the formula I mentioned as the monthly interest at 6% is £330.

Caz3121

Few lenders will give a BTL mortgage if you do not have a current residential mortgage, there is also minimum income requirements. Deposit needs to be in the region of 20%+ and the rental needs to be around 125% of the mortgage payment

Being a landlord is not something to be entered into lightly. There are a lot of legalities to be aware of and what would you do it the property was empty/trashed by a tenant?

Buzzz

Hi, thanks for your replies, my heads spinning already!

To be honest I haven't given any of it a massive amount of thought but do need to think of how best to invest this money.

I've currently just come off a mortgage, so it's not as though I haven't had one before. I assume that makes no difference if you've not got one now?

Personal income is good and I will likely be going on another mortgage for a property I want to live in approximately 1-2 years time.

I haven't thought massively about the landlord headache, although working for a housing association I am well aware of it and would most likey plan to use an agency to manage the property; although I have also thought about buying a larger house in a town area and handing it to a housing association to manage as I know there is a need for larger properties at the moment.

I guess the other option is to buy to improve and sell on, or invest money into something else until i'm particularly sure what I want to do with it.

Sorry for the vagueness and silly questions, but this is new to me so finding my way with it really.

kingstreet

Lenders prefer you to own a property. It does not matter if it has a mortgage. It is the owner occupation bit which matters as you are unlikely to be trying to get a residential "through the backdoor" if you already own your own home.

Buzzz

Ah, i've just thought, technically I own my parents property. It is mortgage free and the deeds are in my name. I also am still on the deeds of another property, although not the mortgage?

kingstreet

That will open up the "no FTB" lenders to you as well then.

Buzzz

What's FTB?
Sorry, a couple of more questions following your first post...

Is the 25% deposit of the house sale price?

How do BTL owners normally pay mortgage off or what are the options?

In your example, buying for £88k, is this the house sale price?

Using your formula in the exampel above...if i'm paying monthly interest, say at 6%, £330, yet my rental income is more, as you suggest, is this difference mine?

Sorry for the numpty questions, they'll get better, honest!

kingstreet

First Time Buyer.

25% of the price you agree to pay for the property.

Sell property. Separate savings plan lump sum. Pension lump sum etc.

£88k would be the maximum you could agree to pay, keeping the deposit in reach.

The difference would be used to cover other expenses, such as letting agent fees, maintenance etc. Anything left over after allowable expenses is declarable to HMRC as income and taxable.

Buzzz

Thought so, will it though as i'm not a FTB?

Sorry, being thick, price you agree to pay, that's what you agree with seller? If so it's not much is it with the deposit I have to hand.

Not sure what else to do with the money really, or least that I haven't researched at present.