Buy to Let

old_hat

By self financing I assume you mean meeting the 125% figure of rent covering the mortgage, which based on todays deals it would do.


I suppose the best option is to save save save and see what happens with the market in the mean time. Thanks for the advice

HappyMJ

old_hat wrote: »

Thanks for this - the issue is not with the price - we had actually sold to a cash buyer for 10k more but they pulled out because they changed their mind and we have had a second buyer pulling out because of poor advice from their solicitor. I am just exploring options as I am wondering if, with the above figures, the option of keeping the flat and buying new would be feasible. From there we would then have a goal of how much to save to achieve this goal.


Not committing to this option but wondering if this could work so that we do not rely on the fortunes and luck of buyers.
Thinking of saving like mad to get a deposit for house.


2 years time: on our flat - assuming 190k value, new 140k BTL mortgage 25% LTV (pay off 95k existing mortgage and 19k equity loan leaving 26k which we could put towards the new house)


Hopefully in 2 years have saved 35k which is 10% of a 350k house. Use the 26k to cover stamp duty. Plus we could save extra if we wait a few months..


All this is hypothetical but all I really want to know is; if we decided to go down this route, would it be possible. Joint salary over 100k

If you're flat is not selling at £185k then it's not worth £185k. It's a depreciating asset...a leasehold flat. As time goes by the lease gets shorter and it's value falls. Why would it be worth more in 2 years?

I personally think you're wasting your money keeping it. Paying an extra £10,500 in SDLT isn't worth it for just two years. You can't even claim that money back as you would if you had bought a second property and let it out reducing the eventual capital gain as you will be living in the property and not pay any tax on the gain anyway.

The answer to your question is yes it's possible.

old_hat

We accepted a sale at 185 (and we accepted a higher offer but they changed their mind due to wanting a 3 bed instead) so the value is there (we have had 15 offers at this value); it fell through a week before exchange because of the buyers solicitor finding a non existent problem. So I believe the value is there and flats in this row in our 8 years have never been empty - we are now about to extend the lease by another 90 years as well.


What about the viewpoint of keeping the flat as a long term investment - a form of pension pot?

HappyMJ

old_hat wrote: »

We accepted a sale at 185 (and we accepted a higher offer but they changed their mind due to wanting a 3 bed instead) so the value is there (we have had 15 offers at this value); it fell through a week before exchange because of the buyers solicitor finding a non existent problem. So I believe the value is there and flats in this row in our 8 years have never been empty - we are now about to extend the lease by another 90 years as well.


What about the viewpoint of keeping the flat as a long term investment - a form of pension pot?

You have 84 years left on the lease. You do not need to extend the lease before sale. What is it going to cost to add another 90 years on to the lease?

If you've seriously got 15 offers at the asking price then sell it...why do you want to keep it? Tax changes are making keeping BTL property a bad investment.

If you're keeping it for your pension then making additional pension contributions would be more tax efficient.

I do own a BTL property myself. I hardly make anything from it. It's worth about £145,000 and from £600 monthly rent I barely make £30 profit each month if I'm lucky. Unexpected repairs and voids can easily wipe that tiny profit out. It's very risky. I make more money by paying off debt and from putting savings into regular saver accounts and current accounts.

edit: If I were a 40% tax payer as you are I would be losing money each month as interest on the mortgage will soon only be subject to 20% tax relief. It definitely would not be worth it.

old_hat

I think it is because we have felt quite unlucky since we started back in June and have good wages to buy (over 100k between us) but have lost 2 houses we were due to buy because of buyers of ours pulling out at the last minute. So that is why I am trying to reason if there is any scope in the let to buy idea.


We were using our sale to fund the deposit for our new house and when our sale fell through so did our house.


Here is another scenario: what if we had the deposit in cash for a house (say 35k) but were also trying to sell and our flat sale fell through would the bank lend to us still for the new property - even if our intention was to sell (we would even lower the price) but my worry is about going through the buying / selling process again and the decisions of a buyer scuppering our next buy. Don't want to go through that again

HappyMJ

old_hat wrote: »

I think it is because we have felt quite unlucky since we started back in June and have good wages to buy (over 100k between us) but have lost 2 houses we were due to buy because of buyers of ours pulling out at the last minute. So that is why I am trying to reason if there is any scope in the let to buy idea.


We were using our sale to fund the deposit for our new house and when our sale fell through so did our house.


Here is another scenario: what if we had the deposit in cash for a house (say 35k) but were also trying to sell and our flat sale fell through would the bank lend to us still for the new property - even if our intention was to sell (we would even lower the price) but my worry is about going through the buying / selling process again and the decisions of a buyer scuppering our next buy. Don't want to go through that again

You've got 18 months in which to sell the flat and get the additional 3% SDLT back. When you move I would just leave it empty and sell it to the best qualified buyer. There is no CGT to pay as you've got yourself an exemption having lived in it.

old_hat

Thanks for your help, but just to clarify


If I have the cash to buy (the 35k) and arrange with a new mortgage lender but my sale does fall through that wont stop a lender lending to me?

HappyMJ

old_hat wrote: »

Thanks for your help, but just to clarify


If I have the cash to buy (the 35k) and arrange with a new mortgage lender but my sale does fall through that wont stop a lender lending to me?

No it won't as you're not making the purchase conditional upon the sale of the flat.

Normally when you make an offer on a property you offer £350k subject to finance being approved. If the finance is not approved you can just pull out without penalty. If you make an offer at auction then the offer is unconditional whether finance is approved or not you must complete.

You will still need an extra £11k for the additional SDLT but if the flat does then sell in the next 18 months you get that back.

AnotherJoe

The only way to "not go through that again" would be to sell the flat and buy a house later if only by a few weeks. Is there someone you could stay with temporarily or would you need to rent?

The issue is, the house you are buying could also fall through anyway so it isn't really giving you much benefit if you do that. I think a couple of unfortunate experiences are clouding your judgement. And you'll end up in the house you want to be in much later than if you just got stuck back into the standard house buying process flawed as it is. You are currently talking about delaying by two years when you could be buying now and also moving out of what will likely be a depreciating flat due to the lease shortening.

P.s. if you do buy a house and then sell the flat separately then make sure the mortgage you get allows you to overpay or change it so you can then put the equity from the flat back into the mortgage and get a better LTV and a lower interest rate. Or in other word don't get a five year fix or similar. You'd likely be better off with a no fees higher interest rate mortgage you can switch after a few months into a better rate due to the money from the flat coming in

old_hat

Thanks for your input.


So it would be worth to budget for a deposit plus and emergency fund (to cover SDLT) in case the flat falls through (35k + 11k + costs of course) ?


I think this seems the better option


Excuse me for one last question - the lease extension is 6kish - would that not make the value worth more for buyers and the cost cover the amount I could sell for?