Life plan - is it viable?

Newlyboughthouse

Hi guys

I bought a house in August 2013 and put down £30k deposit, and took out a £97k mortgage. I am allowed to make overpayments on my mortgage of up to 10% of original loan amount per year, which I am doing. My mortgage balance is currently £90k and I have £6k in savings which I will use to make a huge overpayment when this matures in April, then not make any payment until the next year of my mortgage in August 2014, by which time I will have saved up another large chunk of money to make an immediate overpayment - reducing the interest. I am planning on keeping this up until it is paid off (about 6 - 7 years at this rate). I also have another £3k in savings which matures in 2015. I earn £28k plus up to £10k commission per annum, plus I have a second job where I can do as many shifts as I like. I have told you this just to show that it is realistic that I can get it paid off quickly.

However, I am 26 years old and want to to the Australian Working Holiday before I turn 31. Is it viable to rent my house out when I am 30 while I am in Australia to pay off the remainder of my mortgage and come back mortgage free? I.e. could I exit my mortgage whilst abroad and not here to do paperwork etc? Or is this a bit rosy. I have a 5 year fixed rate mortgage - Would I have to make it a buy-to-let mortgage? Is it possible to turn a fixed rate mortgage into a buy-to-let? Has anyone got experience of living overseas while renting their house out towards the end of a mortgage? Do I have to make it a buy-to-let or are the chances good of just informing my lender in the hope that they'll give me permission to rent it out, given there'll be so little time remaining on the mortgage

I am also worried as I probably will have no job to come back to. However I don't want to be in the rat-race my whole life and want to set up my own business and also become a landlord. Ideally I'd like to be able to move back into this house just for a while, but what about the tenants? Can I put in the contract that it will only be a year and then they have to move on? I ideally want to mortgage a second home but if I can't find a job when I return from Australia then nobody will give me a mortgage surely? Will being a landlord count as enough for a lender to give me a mortgage? I plan on making it a multi-let house so will have approximately a part-time income, but probably a substantial deposit.

Sorry there are so many questions! Hoping one of you lovely lot can expose some pitfalls to me as this all seems a bit easy at the moment.

dimbo61

You have only owned the property for six months.
Well done on building a good deposit and overpaying so quickly.
If you plan on renting out the place for a year ? I would carry on overpaying and also build up savings for your stay in OZ.
You need consent to let from your existing Lender who may also require you to use a Letting Agent if you are out of the country.
As for the BTL empire why not enjoy your new home and save for a deposit for the first BTL property.

dimbo61

You cannot just change from a five year fixed residential mortgage to a BTL mortgage/loan. You may well have to pay the ERC if you wish to become a Landlord as a career.

Newlyboughthouse

Thanks dimbo

Sorry for my ignorance but what is ERC?

Annisele

Newlyboughthouse wrote: »

I have a 5 year fixed rate mortgage - Would I have to make it a buy-to-let mortgage?

Either BTL or CTL (consent to let). Your lender may or may not give consent. If you go to a new lender during the first five years, you'll likely have to pay an early repayment charge (ERC). The amount will be on your mortgage offer.

Is it possible to turn a fixed rate mortgage into a buy-to-let?

Probably not. If you stayed with the same lender, you'd likely be wanting a CTL rather than a BTL.

Ideally I'd like to be able to move back into this house just for a while, but what about the tenants? Can I put in the contract that it will only be a year and then they have to move on?

You can put whatever you like into the contract. But if the tenants choose not to move out, you won't (legally) get them out without a court order - and that can easily take six months. You'd have to find somewhere else to live in the meantime.

Plus, you'll probably restrict your market if you say you only want to let the place for a year.

I ideally want to mortgage a second home but if I can't find a job when I return from Australia then nobody will give me a mortgage surely?

Generally, no employment income means no mortgage. If you do have enough investment income to pay a new mortgage, some lenders might consider you - but much easier with a job!

You'll very likely have to employ an agent in England/Wales. If the house is in E&W, then you need to give the tenant an address in E&W for serving notices etc. That could be your mum/friend/next-door-neighbour - but since that person will likely also be dealing with maintenance issues, it's likely to end up being a letting agent.

Make sure you understand the tax consequences of being a non-resident landlord.

Newlyboughthouse

I guess I can keep a room vacant for my return, so I would be a resident landlord - then would I need consent from lender to have lodgers?

getmore4less

Newlyboughthouse wrote: »

I guess I can keep a room vacant for my return, so I would be a resident landlord - then would I need consent from lender to have lodgers?

That's what someone else on here has done.

dimbo61

The lodgers might notice when you go out in the morning with a big suitcase/rucksack and don't come back for 12 months.
Who pays the bills, collects the rent, gets the boiler sorted when it needs a service, gas safe check, repaired!
Why would they pay rent !
House repossessed and your credit score in the toilet for next 6 years plus you owe money to lender.
Great Plan

dimbo61

You have to tell your Insurance Company and should inform your lender.
Great way to start a business by committing Mortgage Fraud

Newlyboughthouse

Dad's a plumber and good at repairs etc so he would take care of any of that. I wasn't planning on keeping it a secret that I'm going away - just wanting to keep my room vacant for my return - would you want someone else sleeping in your bed while you're on holiday, albeit a long holiday? How would this be mortgage fraud? Planning on telling lender exactly what I'm doing!

hcb42

Because effectively you would be renting it, just not your room

Get the proper permission and then you can pay the mortgage while you are away, just remember to plan for tenant disputes, marketing fees, repairs, period left empty etc

On the other hand the exchange date might help pay it off quickly if you are lucky