Renting out current property and buying a new one- advice?

naomi89

Hi guys.

I bought my flat with a mortgage nearly two years ago, since then I have married and my husband and I both live in the home which I bought. We are keen to buy a house together in the future but would very much like to keep our current home as an investment opportunity.

Where do I go for independent advice about such matters? I basically want to find out if it will be affordable for us to do this?

Where do I start with it all?

Thanks in advance

Cornucopia

Either approach a Mortgage Broker (some are free, some you have to pay for), or if you post rough figures here, there are a number of knowledgeable people who will give you advice.

The key questions are:-

- The mortgage amount, equity and mortgage payment of your current property.

- The purchase price and deposit of your new property. Generally, you will be able to borrow 4-5 times your salaries, if you have minimal other commitments, a reasonable credit history and sufficient deposit.

- The likely rent payable on your existing property.

You have the choice between:-

- Let to buy.
- Buy to let.
- Consent to let.

Which is best will depend on mortgage rates and how good the rental return is. Consent to let is at the discretion of the existing lender.

naomi89

Cornucopia wrote: »

Either approach a Mortgage Broker (some are free, some you have to pay for), or if you post rough figures here, there are a number of knowledgeable people who will give you advice.

The key questions are:-

- The mortgage amount, equity and mortgage payment of your current property.

- The purchase price and deposit of your new property. Generally, you will be able to borrow 4-5 times your salaries, if you have minimal other commitments, a reasonable credit history and sufficient deposit.

- The likely rent payable on your existing property.

You have the choice between:-

- Let to buy.
- Buy to let.
- Consent to let.

Which is best will depend on mortgage rates and how good the rental return is. Consent to let is at the discretion of the existing lender.

Thanks that was really helpful. Its difficult to know where to start sometimes.

I currently have £60k left to pay on my mortgage, the full amount was £83k, therefore mortgage payments are £250 p/m

The estimated property value is probably between £85-89K and the estimated rental income would be £500-550 p/m

Our combined income is approx. £35k, I earn about £20k at the moment.

Is there any other information I need to include?

moneysavermummy2014

The value of the property will be vital to calculate your LTV, as would potential monthly rental income, which generally needs to exceed about 125% of the mortgage repayment (I believe anyway!! ) Good luck xx

Cornucopia

naomi89 wrote: »

I currently have £60k left to pay on my mortgage, the full amount was £83k, therefore mortgage payments are £250 p/m

This suggests that there wouldn't be much equity to release for a deposit for the new property. Which means you will need to find a deposit for it (ideally 10-20% or more).

Our combined income is approx. £35k, I earn about £20k at the moment.

Okay, so you'd maybe be borrowing £140-175k, with a deposit of between £14-£17.5k or more. Add the borrowing to the deposit to get an idea of possible purchase price.

Is there any other information I need to include?

Yes, as above, you need to know how much your existing property is likely to rent for. Different lenders have different rules for how much this needs to be, but many are 125% of the mortgage interest payment, if the mortgage rate were X% (usually 5 or 6). This doesn't sound too much of a stretch with a £250pm payment.

Consent to Let (where your existing lender allows you to keep your existing mortgage, but lets you rent the property out) is probably the easiest scenario, and also the most flexible. Lenders generally charge a fee for this (typically a 0.5-1% loading on the interest rate).

Mortgage Interest is tax deductible against the rent, but the remainder will be subject to income tax.

G_M

Independant mortgage adviser to understand mortgage options, plus an informal enquiry to your current lender to find out whether/how they can help.

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