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Renting our flat and buying another

Hi MSE community,

I'd like to share our house move plans with you and see what you think....

Joint income of £62K pa

Current Property:
1bed flat, Islington, London - Value £200k, Mtg £36 however, 38.5% equity with loan company.

We'd like to move to a 2bed in Sussex of approx £250k while keeping the London flat as a rental asset (it's in zone 2, near tube in up-and-coming area.)

Here's the plan we've come up with:

1.Valuation: We're awaiting results of a current valuation to start the process of buying out the 38.5% loan (my wife was NHS and got flat with Keyhomebuy/Metroplitan assistance). This should come in at £77k.

2.Remortgage/borrow: Remortgage London flat to free up 77k for loan and also £50k for deposit on new home.
total new mortgage = 36 + 77 + 50 = £163k

3.Convert to Rental: Change mortgage on London flat to BTL type so we can rent it out (advised rental income of >£1kpcm)

4.Buy: Purchase new home with 20%+ deposit
:)

We've got a few questions though.....

Would it be better to just convert the mortgage to BTL at the same time as remortgaging to save on fees/multiple products changes? We'd need to free the cash for the loan quickly as valuation only stands for 3 months. Can you live in BTL (temporarily)?

Are we better with repayment or interest only BTL mtg? I heard interest only can save on tax as you're not directly paying mtg off...sounds dodgy....?

Can anyone offer any tips/advice?

thanks:T

Rob
«1

Comments

  • lvm
    lvm Posts: 1,544 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    I'm no expert but can tell you the following:

    Yes, change to BTL while remortgaging or taking out money...but likely you could only go up to £150k if £200k value (75% LTV). Could try consent to let on residential but might be a long shot if asking for money at same time.

    Yes you can live in BTL temporarily.

    Always interest only...it's only interest that's tax deductible so technically anyone on a repayment BTL will eventually have no mortgage and not able to claim much off the rental income therefore paying more tax.
  • dimbo61
    dimbo61 Posts: 13,727 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    NO YOU cannot live in the BTL once you have taken out a BTL mortgage that is mortgage fraud!!!
    Yes you should try for Interest only on the BTL but the rent needs to be at least 125% of the mortgage
    Now £150K at 4% works out at £500 a month interest only but you also have other costs, Letting agents, landlord insurance, gas safety certificate, getting the flat ready ETC
    You may think your flat is worth £200K but have you got recent sales in the same area of other one bed flats to prove this ?
  • G_M
    G_M Posts: 51,977 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    New Landlords (information for new or prospective landlords)
  • Thanks folks,

    Ivm - ok, will use 75% LTV from now on.

    dimbo61 - would you suggest we re-mortgage to residential then once we find a flat change for BTL? We want to do this properly.

    A little more info on the valuation...
    we've actually already had one done with RICS surveyor (admittedly referred by loans company:think:) that came in at £220k! We were shocked as this seemed very high and we didn't fully agree with the comparable properties used. We contested this but the surveyor insisted it was accurate.
    As it's to pay off a loan, we decided to risk another independent surveyor to see if we get a lower figure. We worked out that if it comes in at under £218k we've more than covered survey costs.

    Do you know if lump sum payments are allowed on interest only mtgs?
  • Yorkie1
    Yorkie1 Posts: 11,669 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    You'd have to double check the T&C of the particular product.

    Have you also double checked whether your lease permits sub-letting?
  • rob404uk
    rob404uk Posts: 177 Forumite
    200k sounds cheap for a 1 bed in Islington. Have you recently had it valued?
  • rob404uk
    rob404uk Posts: 177 Forumite
    sorry, I saw U R awaiting valuation
  • Robsym
    Robsym Posts: 6 Forumite
    Hi all,

    Yorkie1 - that's a good point, i'll have to look into it. I'm pretty sure plenty of the flats in the same block are rented but it's worth checking.

    Rob404uk - It's funny you should say that as our new valuation came back today at a whopping £250k!!:eek:

    So we've now got 2 recent valuations, one at £220k, the other at £250k.
    I guess we'll use the high valuation when we're borrowing and the lower valuation when we're buying-out the loan ;)

    Here's the latest sums:

    Give loan company £220k valuation. buyout is 38.5% so £84.7k

    We also want around £60k for new house deposit.

    so we'll be looking to borrow £60k + £85k = £145k

    that's on top of our remaining £36k so mtg total is 36+145 = £181

    75% LTV on £250k valuation = £187k

    so it seems possible, even if we are hitting the 75% LTV limit.
    I'm going to see our mtg provider on Wed to get a quote on the extra borrowing.

    any thoughts?
  • dimbo61
    dimbo61 Posts: 13,727 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    The valuation from the BTL lender is the Valuation that is important!
    If they say it is worth £250K great you can borrow 70/75% and repay the existing mortgage, clear the loan and have the money you need for a deposit.
    If your long term plans are to keep the property as an Investment then the rent must be at least 125% of the mortgage costs.
    IE mortgage £938 ( £187,500 at 6% ) therefore rent needs to be at least £1250
    This is ignoring other costs, letting agents fees, landlord insurance,gas safety checks, etc
  • dimbo61
    dimbo61 Posts: 13,727 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    The Loan company may require you to pay for a valuation from there panel of approved Surveyors ! so they have a current up to date figure which you must pay to buy out the loan
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