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Advice on buying a second property / letting first?

shawon007
shawon007 Posts: 47 Forumite
Fifth Anniversary 10 Posts Combo Breaker
in House buying, renting & selling
Hi guys,

First off, a bit of a background. I'm 23 and I have purchased the family flat in London last year. The value of the flat is currently ~£260k and I have a £98k outstanding mortgage on it.

I'd really like to move myself and my family into a bigger home. I have seen suitable homes going for around £350k and I am inclined to buy one so I can rent out the flat.

The potential rental earnings are about £1,800 to £2000. I currently earn ~£27k.

Do you think it is possible / affordable for me to purchase the house, then rent out the flat? If so, how will I go about doing so? Will it be best if I convert the current mortgage to a BTL and release equity for the deposit on the second home? And will the banks take into account the rental income for the flat if I apply for a mortgage in principle for the second home?

Thanks in advance!

Comments

  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    How do you propose buying a £350k property on a £27k salary?
  • shawon007
    shawon007 Posts: 47 Forumite
    Fifth Anniversary 10 Posts Combo Breaker
    My idea was to put down a large deposit, by releasing equity from the flat. If I could then rent out the flat under a BTL mortgage, the rental income should theoretically pay for most of the monthly mortgage amounts for both properties.

    Would that be a sensible approach to take?
  • kingstreet
    kingstreet Posts: 39,445 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    If the flat is worth £260k, the maximum let to buy remortgage you will get is 75% of that.

    £195,000 - £98,000 = £97,000 less fees and costs of purchase would leave you about £90k for the next purchase.

    Incidentally, if the "family flat" was a right to buy you can't borrow into the council discount without council permission and you won't get that.

    To buy for £350k with £90k deposit, you would need a £260k mortgage and that would be 9.6 x income, or impossible these days.

    You will not get any of the rental income taken into account in affordability for the new residential. The best you can hope for is a lender which will treat the let as self-financing and ignore the cost of it, not making a deduction from your income for "void" periods when you have no tenant, but still have a mortgage to pay.
    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.
  • booksurr
    booksurr Posts: 3,700 Forumite
    as Kingstreet says, lenders do not include rental income when calculating the amount you can borrow to buy a property you are going to live in yourself.

    you need to find a different plan
  • nubbins
    nubbins Posts: 725 Forumite
    shawon007 wrote: »
    Hi guys,

    First off, a bit of a background. I'm 23 and I have purchased the family flat in London last year. The value of the flat is currently ~£260k and I have a £98k outstanding mortgage on it.


    The potential rental earnings are about £1,800 to £2000. I currently earn ~£27k

    Thanks in advance!

    I'd like to know where I can get a property for 260k that rents out for 2k a month, I'll have 2!
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