Re-mortgage and buy to let advice

8elarus

Hi all,
We're looking to relocate to a better area and considering two options.
We've had the estate agents around and they're confident they can get us 130K for our house, or 125K if we are in a rush. Apparently, at this price it'll go overnight.

We've got 65K left on our mortgage. This should raise enough money for a deposit for a house in the area we're thinking of (it's a lot more expensive there).

Alternatively we were advised we can re-mortgage and take out a buy-to-let mortgage on our current house and have enough for a deposit for another house.

Price-wise, we're looking to buy anything up to 160K. I know a couple of ppl who've recently done just that (on similar income with similar equity on their house), but they're not close friends so can't go pestering them with money questions.

Also, for some bizarre reason, when they re-mortgaged they've got a 20K lower valuation on their house from the bank, than from the estate agents (they were considering selling all together).

I just wanted some basic advice before speaking to the bank and getting the brokers involved. Buy-to-let sounds like a good idea, but I heard you need a bigger deposit to take one out.

Thank you.

HappyMJ

You usually need 25% equity to get a BTL mortgage without too many problems.

The rent also needs to cover the interest plus another 25%. i.e interest on mortgage £500 per month then rent must be at least £625.

They calculate the rent cover by using a higher interest rate than the one you are actually charged....they might use 6% or more. You might only be charged 2 or 3%.

Do you really want to be a landlord?

8elarus

Hi! Thanks for the reply. I really like our house, don't really want to sell , nut the area is letting it down a bit.

The current rent valuation is around £650-700.
Why do you ask, is it not worth it? Ideally I'd want to keep the current house, but I'm concerned it's going to cost us a small fortune to have both mortgages and we'll be left with no disposable income. And what happens with the tenants trash the house and you have 2-3 month where no rent is coming in.

If we decide to do it, what extra costs do we need to factor in?

Thank you.

HappyMJ

8elarus wrote: »

Hi! Thanks for the reply. I really like our house, don't really want to sell , nut the area is letting it down a bit.

The current rent valuation is around £650-700.
Why do you ask, is it not worth it? Ideally I'd want to keep the current house, but I'm concerned it's going to cost us a small fortune to have both mortgages and we'll be left with no disposable income. And what happens with the tenants trash the house and you have 2-3 month where no rent is coming in.

If we decide to do it, what extra costs do we need to factor in?

Thank you.

£650 is quite good assuming they use an interest rate of 6% it should qualify you for a mortgage of £104,000 which is higher than 75% of the lower end of your valuation of £93,750...you get the lower of the 2 figures so £93,750 or 75% of whatever they value it at. That'll cost you £468.75 in interest each month so you'll have £181.25 to pay the fees and costs with the property...and have a little profit.

You've got buildings insurance...landlords pay a little more than owner occupiers. You've got management fees or you can do it yourself chasing the rent and taking the calls from the tenants. If you've got a day job it's probably easier to let the agency handle that. You've got the annual gas safety certificate. You've got to be able to cover voids every now and again. You've got depreciation and maintenance. Carpets don't last forever they'll need replacing. You save a little each month for that eventuality.

It can be an easy investment but you might occasionally get "the bad tenant" which are best avoided by getting references if possible and regular inspections. If any problems are found then terminate the tenancy as early as you can.

8elarus

Brilliant, makes a lot more sense now.
So potentially I have £650 rent coming in, £470 to pay out and around £550-650 to pay for the second house- just been on a comparison site-around £100/month insurance (with gas safety, etc) and agents' fees.
So potentially paying double of what we pay now, but keeping the house we have and moving to a better area.

Just two more questions: do we need o do self assessment on rent income (assuming £7800 per year) and what it's likely to cost tax wise. We're both within 20% threshold at the moment.

Why would the bank value the property 10-15K less than what it actually goes for if sold and not re-mortgaged?

Thank you!!!

Thrugelmir

8elarus wrote: »

And what happens with the tenants trash the house and you have 2-3 month where no rent is coming in.

You'd be running a business. With reward comes risk. It's not for everybody. Nor should you put your entire the financial security on the line.

Typhoon2000

With the figures abouve there will no ( or next to no) tax to pay, once you claim annual 10% wear and tear allowance. you still have to fill in the appropriate pages of the self assesment tax return though.