How does renting out to buy work?

chelseablue

Is there a simple way of working this out or should I speak to a FA?


Im thinking instead of selling our flat when we find a house we like, renting it out for a period.


This would mean when we find somewhere we like we wouldn't have to worry about finding a buyer.

But how does it actually work? I get that we would then have 2 mortgages for a while but I'd like some advice as to whether it is a crazy idea? or even doable?

Current flat value, approx. £210,000


Mortgage outstanding £90,000


Mortgage payment: £479 a month


Flats in my block rent for about £850 - £900 a month.


The max we can borrow is £240,000 houses sell for about £400,000 round here. So does that mean we would have to sell up? Or is there a way of using the equity in the flat while renting it out?


After we move into the house we could sell the flat after 6 - 12 months and pay off some of the mortgage on our house

kingstreet

It's a let to buy.

I've just been talking about one here;-

https://forums.moneysavingexpert.com/discussion/comment/69197398#Comment_69197398

getmore4less

Current flat value, approx. £210,000
Mortgage outstanding £90,000
The max we can borrow is £240,000 houses sell for about £400,000 round here
we would have to sell up? Or is there a way of using the equity in the flat while renting it out

HOw much cash do you have?

even if you could use all the equity(£120k) in the property(sell or 100% mortgage) you are still £40k short of £400k

chelseablue

kingstreet wrote: »

It's a let to buy.

I've just been talking about one here;-

https://forums.moneysavingexpert.com/discussion/comment/69197398#Comment_69197398

Thank you Kingstreet. Read that and none the wiser haha.


Would I have to change the flat mortgage to interest only?


Do I then release equity from it to put down on the house? I presume if I did this the mortgage payments on the flat increase?


How do I work out the total monthly payments on us keeping the flat on and buying a house?

chelseablue

getmore4less wrote: »

Current flat value, approx. £210,000
Mortgage outstanding £90,000
The max we can borrow is £240,000 houses sell for about £400,000 round here
we would have to sell up? Or is there a way of using the equity in the flat while renting it out

HOw much cash do you have?

even if you could use all the equity(£120k) in the property(sell or 100% mortgage) you are still £40k short of £400k

At the moment we have £47,000 cash in savings, plus we add to it each month

nidO

chelseablue wrote: »

At the moment we have £47,000 cash in savings, plus we add to it each month

When you say the max you can borrow is £240,000, is this your total limit based on affordability?

If so, you're still short.

Say you switch your flat mortgage to a buy-to-let at 85%, this takes your mortgage upto £178,500, providing you with £88,500. Assuming all is done right this £178,500 is effectively discounted from your max borrowing for affordability as it'll be being covered by rental payments. Your mortgage repayments will obviously increase significantly.

This leaves you with £88,500 + £47,000 = £135,500.
If the max your bank will lend you based on affordability is £240,000, this means you'll have £240,000 + £135,500 = £375,500 with which to buy a house.

Into this you'll have to factor in legal/conveyancing fees for 2 mortgages as well as stamp duty on your new purchase (which would be £8,750 on a £375,000 property) so you're probably looking at being able to afford a £365,000 property at most.

You probably want to take all your figures along to a mortgage broker to get a better idea of what can be done.

getmore4less

the £240k was DIP from Halifax,
one default

https://forums.moneysavingexpert.com/discussion/5301281

chelseablue

Yes that's me
DIP expires on 1st November, but may wait now until next year to look again