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Remortgage to buy rental property

Craig_Donny
Craig_Donny Posts: 145 Forumite
Part of the Furniture 10 Posts Combo Breaker
edited 20 November 2014 at 11:48AM in House buying, renting & selling
Hi, I have been on here before as plan was to buy a HMO however a house has come up that will fit finances better for now.


So would like some advice, my plan is to remortgage my home I live in. I currently have a mortgage for £63500. I got it valued by an estate agent 5 months ago and he said "£125000 to £130000" and it would sell quick, so not sure if its worth slightly more or he just thought its desirable. The property I want to buy is £55000


So on 'compare the market' if I was to say my property is worth £140000 and borrow an extra £55000. I can get it for 455.99 a month with 'Principality' (never heard of them). So to start do you think its possible they would value it at that?


Arrangement costs are £99, guessing I would have to pay for valuation fees, any idea on them costs? Also how long would the process normally take?


I am new to this, so I apologise if I have missed out key details. I appreciate any help as would like to go ahead ASAP if I can sort it.


(If valued at £134000, I could borrow £50000, for £436.75 with same company. Could borrow rest of family)
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Comments

  • kingstreet
    kingstreet Posts: 39,105 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    An EA valuation is usually well above reality, so I'd say assume no more than £125k, as that is the SDLT threshold.

    Have a look at recent (last four months) sold prices of similar property in the vicinity (less than 0.5 miles) here;-

    http://www.rightmove.co.uk/house-prices.html

    When you have a realistic valuation in mind, remember you'll be limited to a remortgage of 80% to 85% of that for capital raising. There might be the odd lender offering 90%.

    That means when your existing £63,500 is repaid, you are going to be very lucky to have £38k, then you need to deduct any purchase fees/costs.

    Research carefully the responsibilities and pitfalls of being a landlord before embarking on this plan.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
  • LEJC
    LEJC Posts: 9,618 Forumite
    are you planning to use the equity in your existing mortgage as the deposit for the BTL property....or do you have 25% cash available for the deposit?
    frugal October...£41.82 of £40 food shopping spend for the 2 of us!

    2017 toiletries challenge 179 out 145 in ...£18.64 spend
  • kingstreet wrote: »
    An EA valuation is usually well above reality, so I'd say assume no more than £125k, as that is the SDLT threshold.

    Have a look at recent (last four months) sold prices of similar property in the vicinity (less than 0.5 miles) here;-

    http://www.rightmove.co.uk/house-prices.html

    When you have a realistic valuation in mind, remember you'll be limited to a remortgage of 80% to 85% of that for capital raising. There might be the odd lender offering 90%.

    That means when your existing £63,500 is repaid, you are going to be very lucky to have £38k, then you need to deduct any purchase fees/costs.

    Research carefully the responsibilities and pitfalls of being a landlord before embarking on this plan.


    Looking at rightmove "similar property's are 125 to 130. As you say best deals are 85% and lower, meaning most I can get is £42500. Would need another 10k, other money then used in savings. Would a personal loan be an idea or not? Would be £100 a month over 10 years with Tesco.


    I know its not looking good at moment, but if there is anyway I can comfortably sort this I would love to.
  • LEJC wrote: »
    are you planning to use the equity in your existing mortgage as the deposit for the BTL property....or do you have 25% cash available for the deposit?


    I was hoping to buy it outright from the equity, not sure if that is going to happen any more.
  • LEJC
    LEJC Posts: 9,618 Forumite
    edited 20 November 2014 at 1:32PM
    So what sort of rental income are you hoping for from the property?


    Even if the figures stack up and you get a personal loan...on top of your increase in mortgage repayments and taking into account management fees if you buy leasehold and the costs associated with renting it out ...how much profit are you hoping to generate...


    Sorry to be so inquisitive but having recently purchased a BTL with quite a substantial cash deposit ,once you take into account the other "hidden" or at least not so visible running expenses the profit can be quite small compared to the work involved .
    frugal October...£41.82 of £40 food shopping spend for the 2 of us!

    2017 toiletries challenge 179 out 145 in ...£18.64 spend
  • LEJC wrote: »
    So what sort of rental income are you hoping for from the property?


    Even if the figures stack up and you get a personal loan...on top of your increase in mortgage repayments and taking into account management fees if you buy leasehold and the costs associated with renting it out ...how much profit are you hoping to generate...


    Sorry to be so inquisitive but having recently purchased a BTL with quits substantial cash deposit ,once you take into account the other "hidden" or at least not so visible running expenses the prifit can be quite small compared to the work involved .


    Previously it was rented for £475, so in between £450 and £475. The EA has offered that if I purchase it they will advertise it for free to find a tenant and then I would self manage it.


    I always thought BTL were very expensive, however just looked as you mentioned it. If I was to borrow £30k on my home, then use this money to fund a BTL. My personal mortgage would be £318 and the BTL £110. So a total of £428, however arrangement fees are a total of £1750!


    And please ask as many questions as you like, the more help I can get the better. I really appreciate it!
  • kingstreet
    kingstreet Posts: 39,105 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    A buy to let mortgage is secured on the buy to let property, not your main residence.

    If you want to raise the money on that, you are looking for a residential remortgage from a new lender, additional borrowing from your existing lender, or a separate second charge loan with a third-party, such as a finance house.

    There is nothing to stop you raising the deposit on your own home and the balance on a BTL mortgage on the target property, assuming it values up and the rental income fits the lender calculator.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
  • LEJC
    LEJC Posts: 9,618 Forumite
    edited 20 November 2014 at 1:48PM
    Is it a leashold flat that you are looking to purchase?
    What charges do the management company impose for maintainence per month,as those will usually be covered by the LL rather than the tenant...
    and would there be any additional charges passed to yourself by the management company if its leasehold in respect of subletting...this varies quite a bit...in our case its £125 each change of tenant or you can buy a global package to include up to 5 changes in a given timeframe


    please look into these figures...on the face of it we didnt and as such what we thought would turn a profit of £400 per month was substantially reduced once these figures were added in as costs we would need to meet....
    dont forget as well if there is a gas supply you need gas certificates annually.not a huge cost ....but £60 or so.....electrics need to be up to date and you are likely to need a slush fund for rolling repairs to the property or indeed void periods...there will be some!


    If its a freehold property then factor in LL insurance....and whilst the EA will do you a deal on your first tenant find typically you should factor in a min of £200 or more commonly half first months rent as a guide for expenses....


    Then theres lodging the deposits and an inventory charge....etc etc
    plenty to think about when mulling over the figures !!!!
    frugal October...£41.82 of £40 food shopping spend for the 2 of us!

    2017 toiletries challenge 179 out 145 in ...£18.64 spend
  • LEJC wrote: »
    Is it a leashold flat that you are looking to purchase?
    What charges do the management company impose for maintainence per month,as those will usually be covered by the LL rather than the tenant...
    and would there be any additional charges passed to yourself by the management company if its leasehold in respect of subletting...this varies quite a bit...in our case its £125 each change of tenant or you can buy a global package to include up to 5 changes in a given timeframe


    please look into these figures...on the face of it we didnt and as such what we thought would turn a profit of £400 per month was substantially reduced once these figures were added in as costs we would need to meet....
    dont forget as well if there is a gas supply you need gas certificates annually.not a huge cost ....but £60 or so.....electrics need to be up to date and you are likely to need a slush fund for rolling repairs to the property or indeed void periods...there will be some!


    If its a freehold property then factor in LL insurance....and whilst the EA will do you a deal on your first tenant find typically you should factor in a min of £200 or more commonly half first months rent as a guide for expenses....


    Then theres lodging the deposits and an inventory charge....etc etc
    plenty to think about when mulling over the figures !!!!
    No its a free hold end of terrace house.
  • kingstreet wrote: »
    A buy to let mortgage is secured on the buy to let property, not your main residence.

    If you want to raise the money on that, you are looking for a residential remortgage from a new lender, additional borrowing from your existing lender, or a separate second charge loan with a third-party, such as a finance house.

    There is nothing to stop you raising the deposit on your own home and the balance on a BTL mortgage on the target property, assuming it values up and the rental income fits the lender calculator.

    Yes plan is to remortgage mine for 28k use that as deposit and get a BTL for 27k. As said the costs for this is 1500 - 1700. Plus I am not sure if more costs are involved as do they charge me more to value the two properties?
    Also can it be done together, or do I have to wait for the remortgage to happen and then wait for the BTL to complete. As worried this will take to long and someone will end up getting the house before me and ill end up with 28k and a bigger mortgage with no house to buy.
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