How to fund a buy to let

r1cbm

Hi there,

I have some questions which I am not 100% sure on and am looking for thoughts.... and advice.

I am in a situation where I have next to nothing left on my current property, so it will be paid off in 3 months completely :beer:

Anyway, I am thinking of a buy to let as an investment property (which I did do years ago when the rules were not as strict and I was younger and care free).

So.... as an example. For arguments sake, lets say I want to buy a house for 200k, I need a 75% LTV buy to let mortgage so need to take some equity out of my house so I need to remortgage mine.

Option 1: I'm speaking to L&C and they are telling me to remortgage my house for the full amount and then I can still claim back the tax from the income against the interest on my mortgage.

Option 2: Do I look at remortgaging mine for the 25% deposit (repayment), and then 75% on the Buy to let repayment

Option 3: Same as option 2, but interest only and take the remaining rent and put into an ISA.

Think I will get 850 a month give or take for this property.

amnblog

Option 2 & 3

Investors do not normally take BTL mortgages on a repayment basis unless they are very inexperienced.

Option 1

A good Accountant will tell you that you do not have to raise the funds on the investment property to be able to offset the interest against your income tax. The view you got from L&C is a myth.

kingstreet

If, as an example, you use a lender with a rent/interest calculation of 125% at 6%, your rent will only generate a mortgage of £136,000.

In which case, you would need to raise £64k on your own home as the deposit, not 25%.

This needs careful planning and lender selection.

Let_Us_See

Or, at 125% and 5% equivalent to £163,200 - limited to £150,000 at 75% LTV.

This is a fairly straightforward BTL case, with the option of utilising all or part residential equity funding (larger choice of lender, lower interest rates, probable fee free re-mortgage) subject to affordability. I know which option I would recommend.

Thrugelmir

Let_Us_See wrote: »

I know which option I would recommend.

Personally I would crunch the numbers fully before selecting any option. Because as soon as I hear the word investment as opposed to business I shudder.

r1cbm

Thanks (to some of you) for the constructive responses, it's given me some other things to think about. We are going to find a property first - there is no rush and it maybe better to get a bargain in the next couple of months rather than over the summer (what's left) as I've just seen someone trying to sell a 2 bed for 240 having paid 215 9 months ago....

Let_Us_See

Thrugelmir wrote: »

Personally I would crunch the numbers fully before selecting any option. Because as soon as I hear the word investment as opposed to business I shudder.

I did, only takes a couple of minutes, plus there are other factors beside rate of interest to take into account.

justjohn

Option 1 - but buy a reno. If there is a retention or possible retention on the new property you can use it as a way to get the price down. its more or less a cash purchase so no mortgage company to hold you back.


(its unclear if you are going to rent you current property out or buy a another and rent out the new one)

dimbo61

I want to buy a house for 200k,
Think I will get 850 a month give or take for this property.

Please NO NO NO a 5% return before other costs ? Buying fees, legals, Letting agents, Work required before renting ETC

r1cbm

I'm not planning on renting my current property out, it's our family home. The BTL property is actually more than 200 its priced at 225,000 having been reduced from 235k. I'm viewing again Friday to see where we are and what I can do to reduce the cost of this.

Where I live, you can't get a 2 bed house for less than 200k - which is a pain, (Nr Oxford). I even checked an area yesterday near Didcot, which is a prime commuting location to London - 255 for a new 2 bed :-O 217 for a coach house.

Not looking to make a quick buck - thinking of this as a long term thing. Also, maybe with a view that at some point I sell the main property, move to Devon and buy some land with out buildings, with something in this higher cost area as a Buy to let to keep a steady income.

r1cbm

Rental range
£831 - £979 pcm

Searching nearby - similar 895 a month


Reason for looking local - I know the areas - I can compete any repairs or work that needs to be done.