Raising money from 100% owned property for Buy to let purchase

F650V11

I own outright a small house value about £160,000, which is rented out for £650 per month. I live in a mortgaged house (value £650,000) with a £300,000 mortgage.
I would like to buy another house approx £250,000 to rent out / buy to let. - RENTING AT £950 / M


Whats the best way to release the capital from my small house?, i would guess I need around £80,000 for the buy to let deposit.

MY INCOME £70K

F650

GMS

Speak to a broker. Many BTL products are broker only so access to potentially more lenders.

What rent per month would you expect on the 250k purchase property?

Do you have an income? How much?

holly_hobby

Monthly rent of £650 on a mge of 80k is fine with regards to the rental income requirements of BTL lenders, whilst your income @70k, also satisfies the criteria of those lenders that have an additional earned income requirement.

You may elect to have your BTL mortgage on Interest Only (no requirement for an independent repayment vehicle) or a repayment (C&I) basis.

The benefit of an Interest Only (IO) arrangment is that the entire associated mge interest (if the property when it commenced let was worth in excess of the total mge), may be fully offset against your rental income for HMRC purposes. This is because it is classed by HMRC as capital withdrawal.

The draw back of holding an IO mge, is that your debt will remain constant (unless you make lump sum repayments etc).

If you select a repayment mge, you may only offset the interest element of the repayments, so you will have to absorb the capital repayment element yourself, which will obv affect your net yield (but on the flip you will have a constantly reducing mge balance and chargeable interest over the term).

You can source a BTL remortgage yourself, but really if you want to have the choice from all providers, I would recommend engaging a mge broker, whom will walk you through the process whilst allowing you access to intermediary only deals and lenders.

Don't fortget that all associated costs of the BTL remortgage and business are also tax deductable, as they have been directly incurred in the financing/operating of the business (so ensure you keep records for any HMRC inspection).

With regards to the new 250k pch, with 80k deposit (and a 170k mge requirement) - your anticipated rental income quoted at £950 is a little shy of the typical rental requirement, of 125% of rental income using 6% as a basic calc - which would be £1062.50 pm. Although if you select a medium to longterm fixed rate, the actual product rate itself (if lower) may be used by the lender - notwithstanding that, on current calcs your 950pm rent for the new house, would only suffice a mge debt of 152k (using as I say the 6%/125% ratio).

So to make the figs work (and assuming a 6% mge interest calc rate), you need to increase your deposit for your new rental from 80k to 98k (which your current 650pm rent on the small house will just about cover), and/or check the anticipated £950 monthly rental income for the new BTL, is correct and not way below market average given the property location, specification, etc.(local EAs and letting agentts will assist)

Hope this helps

Holly x

Conrad

F650V11 wrote: »

I would like to buy another house approx £250,000 to rent out / buy to let. - RENTING AT £950 / M



F650

That's a very low rental yield, 4.56%. After typical annual costs and the odd repair / electrical certificate etc, you're barely getting more than a cash account would yield.

I would never invest in relatively risky B2L with it's up's n downs for such a low yield.

8%+ is the number sophisticated investors target.

F650V11

Conrad, thanks for reply, I agree yield is low, but being able to find a property to let and achieve 8%, would seem an impossible goal, especially in South East.

Surely, playing the long game, rental yields now of around 5-6% are more realistic?, with the expectation of capital growth and increased rents in the future say 10yrs, bringing yields closer to 8%

Thrugelmir

F650V11 wrote: »

I own outright a small house value about £160,000, which is rented out for £650 per month.

Gross yield of 4.875% is far too low in my personal opinion to be worthwhile as an investment.

simpywimpy

the danger is that if mortgage rates increase , you may be caught will very little leeway on such a small yield