Buy to Let vision as FTB!?

seabass90

Situation: 20-something living with parents. Working full-time and earning 23k per year. 'Excellent' credit rating.
Currently have around 52k saved and want to use it to get on the property ladder.

My main problem is that I'm a single buyer and my salary (around 1400pcm after tax) is not the greatest for me to live comfortably by myself with a mortgage. Unfortunately, property prices are rising faster than I can save and so continuing to stay with my parents to save wouldn't make sense.

What would be my chances of getting a Buy to Let mortgage as a FTB? I could go ahead and get a normal FTB mortgage now, but I would have absolutely no money left for furniture, fees, etc as I want to throw every penny of that 52k into my deposit to keep my monthly payments as low as possible.

Meanwhile if I were to get a Buy to Let mortgage, I could afford a nice attractive £140k 2 or 3 bed house in a desirable area with good rental prospects. Even with just a £35k deposit hence leaving me with money in the bank, my monthly mortgage payments would be around £475 and it would be quite easy for me to get £650pcm in rental income. If I were to get a 2 year fixed BTL, I could carrying on living with my parents (they don't charge me rent) and saving lots of money for furniture, refurbishment money etc and hopefully progress in my job too. Then in 2 years time, I'm hoping (!) I could re-mortgage as a 'normal' residential mortgage and move in myself?

Does this sound like a feasible option? Obviously the two glaringly obvious bad points are 1) my salary (I.e below 25k) and 2) the fact I don't own any properties. Could I get around this? E.g if one of my parents who own their house outright would go on the mortgage?

_CC_

What part of the country do you live in?

If you're not paying your parents any rent you must be able to save a decent proportion of your take home pay. I could see why you'd want to do the BTL route if properties were going up faster than you could save, but the BTL properties you have in mind are only £140k so I don't see how that really tallys up?

Other option is waiting a little while longer, buy and then take in a single lodger (rent you charge will be tax free). Or, not buying a 2/3 bedroom house as a single person which is usually a stretch for anyone.

As for the feasibility of the BTL mortgage, there are mortgage brokers on here so hopefully they'll let you know...

Person_one

It doesn't sound very sensible to me I'm afraid. Being a landlord brings a lot of responsibilities and expense with it, its not an easy way to bring money in ever month, its a business, a job, with a huge impact on your tenants' lives. Even if any lenders did want to give you a BTL mortgage (unlikely, I'd have thought) do you really want that on top of your existing job?

If a two bed in a nice area is 140K and you have a good credit history, why not put down a 25% deposit to get a really good rate with monthly payments of less than £400 on a 35 year term (no reason not to have a longer term if you're only in your twenties!) and still have some cash in the bank for maintenance.

Edit: Have you put your figures into here to see what sort of rates/payments you'd be looking at?

https://www.moneysavingexpert.com/mortgages/best-buys/

Pixie5740

Talk with a mortgage broker (whole of market not the chap down the bank) to discuss your options. As you say the two issues you face with BTL are your low income and the fact you don't own your home.

What about buying your own place but getting a 2 or 3 bedroom place so you can get a lodger?

Your £52k won't be pure deposit. You've got stamp duty, solicitors and surveys to pay for but furnishing a home needn't be expensive. The British Heart Foundation is good for electricals and furniture, Gumtree is another low cost source of furniture. The only thing I'd recommend spending a bit of money on is a decent mattress.

Guest101

Why not buy your own property and rent out a room to a lodger?

dinkylink

I'm sure someone has advised previously on this board that you need to earn at least £25k to get a btl mortgage. I don't think I'm imagining it...

Guest101

dinkylink wrote: »

I'm sure someone has advised previously on this board that you need to earn at least £25k to get a btl mortgage. I don't think I'm imagining it...

I'm not aware of this, but mortgages aren't my forte, its worth looking in to.

seabass90

_CC_ wrote: »

What part of the country do you live in?

If you're not paying your parents any rent you must be able to save a decent proportion of your take home pay. I could see why you'd want to do the BTL route if properties were going up faster than you could save, but the BTL properties you have in mind are only £140k so I don't see how that really tallys up?

Other option is waiting a little while longer, buy and then take in a single lodger (rent you charge will be tax free). Or, not buying a 2/3 bedroom house as a single person which is usually a stretch for anyone.

As for the feasibility of the BTL mortgage, there are mortgage brokers on here so hopefully they'll let you know...

Thanks for your reply! I'm in Wales and considering buying in Cardiff where the rental market is strong.

I am actually paying £100 to my parents at the moment, but they have said if I'm struggling to save they can waiver this. Other outgoing include my phone, car insurance, car payments and paying off some private dermatology treatment I'm having. I also have quite a bit of a commute to work at the moment so pay around £150 for petrol per month. I'm managing to save around £400 pounds a month which I know isn't great (lots of family milestone birthdays to pay for this year). My understanding is that house prices here rise about 7% a year. I make that 816 pounds per month?

That's interesting about not paying tax for rental income, wasn't aware of that!

To be honest I don't particularly need or want a 3 bedroom house at all. I'd like a 2 bed house so the prospect of getting a tenant in is there. I've considered flats but by the time you add service charges I've found I may as well get a house instead!

danslenoir

As suggested, buying somewhere with a residential mortgage to live in and getting a lodger in to make your life more financially comfortable is an eminently more sensible idea.

Even if you were able to get a BTL mortgage, you will have to pay tax on your rental income, will need to have enough in the bank to be able to adequately carry out your ongoing obligations as a landlord (a landlord's license if you need one from your local council, landlord's insurance, maintenance), and also need to make sure you have sufficient cushion in case the tenant decides to stop paying rent one day. If the difference between your anticipated mortgage repayments and pre-tax rental income is less than a couple of hundred pounds a month as you suggested, I wouldn't be surprised if you ended up with a net loss situation and would be required to supplement it with your normal income.

Also, you will need a larger LTV for a BTL mortage (a minimum of 40% deposit I think). Based on your current balance, that would allow you to buy somewhere priced up to 130k. If you take all of the expenses you will incur during the buying process (mortgage fees, survey, legal fee, etc) off your starting amount the maximum property price you could get a mortgage on will be even less.

There are a lot of good reasons not to do what you are considering.

ThePants999

I don't have advice, but I just wanted to pop my head round the door and say "good job" on saving £52K on a £1400pcm net income!

Pixie5740

Renting to a lodger isn't exactly tax free but if the total amount of rent received is below the Rent a Room scheme allowance then you don't have to declare it to HMRC. Unlike the rental income from letting out an entire property, that you would have to declare.

https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme

The rent a room allowance is going up at the start of the next tax year.