How to work out if its worth keeping my flat and renting it out?

chelseablue

This situation wont be happening for about 3-4 years but I've always been a forward planner so Im hoping someone can advise:

I currently own (with a mortgage) a 2 bedroom flat that I live in.

In about 3 or 4 years I would like to buy a house

I would like to keep my flat and rent it out

What do I need to ensure figures wise to make sure this is financially possible?

I have always been very careful with money and want to make sure all the figures add up

Where do I begin?

SerialRenter

First thing to do would be to check your mortgage too see if it allows you to rent out the property, if not, next step would be buy to let mortgage shopping!

chelseablue

SerialRenter wrote: »

First thing to do would be to check your mortgage too see if it allows you to rent out the property, if not, next step would be buy to let mortgage shopping!

My fixed rate ends in 2016 so would be looking to move after that

BitterAndTwisted

Could you raise another mortgage on your current salary? If so, could you afford to pay both mortgages if you had a non-paying tenant or void-periods?

One way, to cut down on risk is to perhaps port your mortgage to a new property and apply for a BTL mortgage for the flat. This all depends on whether your long-lease allows you to let the flat because a lot of leases preclude you being able to do this. With a BTL mortgage lenders will need you to provide a 25% deposit and the proposed rental-income be 125% of the mortgage-payments.

chelseablue

BitterAndTwisted wrote: »

Could you raise another mortgage on your current salary? If so, could you afford to pay both mortgages if you had a non-paying tenant or void-periods?

One way, to cut down on risk is to perhaps port your mortgage to a new property and apply for a BTL mortgage for the flat. This all depends on whether your long-lease allows you to let the flat because a lot of leases preclude you being able to do this. With a BTL mortgage lenders will need you to provide a 25% deposit and the proposed rental-income be 125% of the mortgage-payments.

My current salary is £30,000

Flat was valued by a surveryor in August this year at £160,000
Mortgage still owed is about £96,000

My mortgage payment is £450 a month. Flats rent in my block for £800 - £850 a month

I have £31,000 in cash savings that I add £800 a month to. So in about 3 years I will (hopefully!) have approx £60,000.
I plan to use a lot of this as the deposit on the house

Does this sound ok or would it be better to sell my flat?
I would really love to keep my flat going instead of selling as I could sell it when I retire or keep it for future generations of my family

BitterAndTwisted

Everything depends on your attitude to risk. And on whether your lease allows you to sub-let. If it doesn't the plan will fail at the first hurdle.

laidbackgjr

How much would the house you wish to buy cost? Would you need the equity in your flat to afford this, a rough guide would be a mortgage for £120k (4xSalary)+ £60k in savings = £180k House and transfer the flat to BTL mortgage - should be fine. Or mortgage for £120k + £60k in savings + £64k equity from sale of Flat = £244k House purchase after selling the flat.

chelseablue

laidbackgjr wrote: »

How much would the house you wish to buy cost? Would you need the equity in your flat to afford this, a rough guide would be a mortgage for £120k (4xSalary)+ £60k in savings = £180k House and transfer the flat to BTL mortgage - should be fine. Or mortgage for £120k + £60k in savings + £64k equity from sale of Flat = £244k House purchase after selling the flat.

Ideally Id like to purchase below the £250,000 stamp duty threshold, so say £245,000

The house purchase would be joint with my partner so the mortgage would be based on joint salaries, plus his savings added to mine as a deposit

Conrad

chelseablue wrote: »

In about 3 or 4 years I would like to buy a house


Where do I begin?

Given this timeframe all you need concern yourself with is building your savings, I can't see what else you could be thinking about?

There are ways to let a current place and move on, but as lending criteria is a moving target it would be an entirely pointless discussion to have now.

N1AK

chelseablue wrote: »

What do I need to ensure figures wise to make sure this is financially possible?

I have always been very careful with money and want to make sure all the figures add up

Where do I begin?

The biggest two considerations are:
a) Whether you want to be a landlord
b) Whether you will have the money and financial stability (confident you will keep earning and have enough cash to handle risks)

If the answer to either of those is no then I'd suggest not doing it. If you are still interested then it starts to get complicated. BTL looks like a good option at the moment because interest rates are stupidly low and house prices are rising; but would it look good if rates were 5% and prices were flat-lining?

There are plenty of guides on getting into BTL online which explain things like financing, yields etc and these will probably match or beat anything we can give you on here.

chelseablue

Conrad wrote: »

Given this timeframe all you need concern yourself with is building your savings, I can't see what else you could be thinking about?

There are ways to let a current place and move on, but as lending criteria is a moving target it would be an entirely pointless discussion to have now.

Yes, I will spend the next 3-4 years saving as much as I can

As you can see I like to plan things as much as I can