Buy a flat to rent while looking for house

Bird999

Hello me and my partner have over 80k cash ready for our deposit but can't find the right house and have been looking for 6 months. I would like , if there is a way to use some of that cash to buy a small flat to rent out and then us the flat and the rest of the cash as a deposit when the right house comes up? We have a combined income of 80k a year and are currently living with parents so can save every month. Would it work out as an investment for the future?

kingstreet

You would need 25% deposit for the flat on a BTL basis.

Many lenders won't offer such products to those who do not already own their own homes.

The remainder of your cash would then be available for the deposit for your residential purchase, but the best you can hope for is the let property is ignored, treated as self-financing. It has no positives for your residential mortgage proposition.

Annisele

If you really want to do this, I think you should run it by a broker - but I can see lots of problems.

Generally, the only thing you can use as a deposit is cash. So, if you wanted to use the flat as part of your deposit, you'd have to sell it first. That would put you in a chain, and would make it more difficult for you to buy when you do find the right property.

There are some bespoke solutions that can involve the loan being secured on multiple properties, or on other assets - but for most people they're not suitable. If you think it's right for you, you definitely need a broker.

Many lenders aren't keen on BTL mortgages for people who don't already own a house. Some are OK with it, but you'll have a relatively small pool of potential lenders.

Tying up your cash in a BTL might greatly reduce the amount you can spend on your own house (although that does depend on the value of the two properties you're trying to buy).

I've no idea if it would be a good investment for the future. Over the last few years, BTL landlords have done pretty well out of house price growth. Whether or not that will continue is anyone's guess.

Bird999

Even if the flat was brought for cash and had no Mortage on it, could it still no be used as part of the deposit?

kingstreet

No. Cross-charging is pretty much a thing of the past as far as standard residential lending is concerned.

Annisele

Bird999 wrote: »

Even if the flat was brought for cash and had no Mortage on it, could it still no be used as part of the deposit?

Only if you sold it first. You could use the cash you raised from the sale, but not the flat itself.

Edit: Sorry, crossposted with Kingstreet yet again. At least we're being consistent!