First Time Buyer Question - Dilemma

jane2200755

Hello,
I’m a first time buyer. I’ve just found a flat that I quite like.
I’m right on the verve of making an offer but one thing is worrying me. To offset the huge debt I’ll be under taking I’ll be looking to rent the property for a year or so before moving in.
Half the people I speak to say that I can’t really do that as I’ll need to get a buy to let mortgage (this is out of question as I cannot raise the higher deposit required). They say that the second I pass it to letting agency they’ll go to my mortgage provider and ask for permission ?
The other half say as long as I keep up with repayments the mortgage provider doesn’t really care.
I don’t really see my circumstances requiring a buy to let mortgage as I have no other debt and my current salary would (just) cover the mortgage repayments alone.
My biggest fear is that if I sign up to mortgage and they then refuse to allow me to let the property?
I guess a big factor here would also be insurance – How would I tackle that?
Any thoughts / advice hugely appreciated.
Best Regards,
Jane.

A_Nice_Englishman

I'm not quite sure how letting the flat out before you move in will 'offset the huge debt'?

Presumably you are assuming you can make a profit i.e. your total rental income less expenses and tax will be more than the rent on your current home.

Could you post the figures you've done to calcuilate this?

jane2200755

I'm still living at home so my current rent is minor.

I'm just concerned about the legalities of doing what I'm proposing?

A_Nice_Englishman

You will need to inform your lender that you are letting the property out and I am pretty sure they will want BTL terms on the mortgage. Otherwise, every BTL-er would just say 'It's OK, I'm going to live in it in a year or two's time so you can give me residential terms".

You will need to insure the buildings, your tenants will insure the contents (if they want to).


If I were you I would do these sums to see if what you're thinking of is viable financially before worrying about the legalities.

(A) Work out your expected profit (or loss) taking into account void periods, agents' fees, insurance, repairs, legal costs, bad debts etc

(B) Work out how much more it would cost you to live in the flat instead of living at home

(C) Work out how much you would end up with if you put (B) in a savings account for a year or so (and then bought with a larger deposit and smaller mortgage).

AndrewSmith

Remember that all the time you have a mortgage on the property you never actually 'own' it but are effectively hire purchasing it from the mortgage company.

To that effect consider the following scenario:

You hire a friend you car, he tells you that it will only be him driving it. It is insured for social and domestic driving in the name of the friend to whom you have loaned it.

You then find out that he has subsequently been hiring it out for track days or as a taxi cab to anyone who comes along that can afford it without your permission thus the insurance is invalid.

This is exactly the same for a property that you purchase under the auspices of living in it but then decide to let it out without formally notifying the lender. If one of yout tennants burned the place down you would not be insured, even if you had landlord's insurance, as you need the express written permission of the lender to validate any claim.

The can also go to the extreme of forcing sale to get their money back under breach of contract (not likely but it is possible).

MortgageMamma

An excellent analogy Andrew, I think I'll use that to explain this to my clients in the future.

Lisa

Badger_Lady

Would you not be better off buying somewhere you can live with a lodger? That way, you don't need any of the legal gumph - no landlord insurance (although you have to declare lodger on your home insurance), no change of mortgage and no tax (under the "rent a room" scheme).

It won't allow you private space but, if you're living at home now anyway, you'll be used to spending time in your bedroom!