Buy to let in the future ...

slhqoue

Hi there,

We are currently interested in buying a two bed flat to live in for the next year or two, however we are keen to rent it out in the future. We are speaking to a mortgage advisor but I wanted to see if anyone has been in this situation before?

We are hoping to secure a mortgage that would be covered in the future by our potential rental income, which I have determined as the rent minus 12% costs from an agency minus service fees, ground rent and a service charge.

I am unsure about any tax implications to what we are doing - we are first time buyers.

Does anyone have any advice or holes to pick in what I've outlined?

mrginge

slhqoue wrote: »

We are hoping to secure a mortgage that would be covered in the future by our potential rental income, which I have determined as the rent minus 12% costs from an agency minus service fees, ground rent and a service charge.

Lenders will base decisions on what you can afford today, not some random rental income that may or may not materialise in a couple of years.

spadoosh

Youll need around 30% equity in the property in order to get a BTL mortgage, dont neccessarily need it now as you will be living it, as soon as you wish to rent it out you will need to have a BTL mortgage.

You will need to declare earnings. There are rules regarding what expenses can be deducted from earnings.

You will need to pay stamp duty on any additional property you wish to buy.

There are many legalities of which a landlord has to adhere to.

Its no longer a passive job being a landlord. You will need to know quite a lot of the rules and regulations or potentially face quite severe consequences (legal challenges, no payment etc).

You will be best to research this information for yourself as to better understand. Whilst forums can offer guidance you will not get better guidance than look to the releveant authorities.


Some places to look are:
gov.uk
housing ombudsman
HMRC
citizens advice.

If your hoping to get a post that tells you all the dos and donts in all likelihood you will not be suited to be a landlord.

Its not overly difficult, proven by the thousands of private landlords across the UK, but it can cause considerable stress and financial problems. You only need to look through the posts on this forum to see that (from landlords and tenants alike).

slhqoue

Lenders will base decisions on what you can afford today, not some random rental income that may or may not materialise in a couple of years.

Yes I realise that. I wasn't suggested that our future rental income will be a determining factor in us getting a mortgage! Only that we're hoping it turns out that any mortgage repayments would be of approximately the same amount as any rental income we could generate (minus fees).

Youll need around 30% equity in the property in order to get a BTL mortgage, dont neccessarily need it now as you will be living it, as soon as you wish to rent it out you will need to have a BTL mortgage.

Sorry, I don't quite understand what you mean by 30% equity. Won't we own the property and have 100% equity in it? Sorry this may be my mistake.

exiled_red

The equity you have will be the value of the house less any outstanding mortgage, so you will only have 100% equity when you have paid the mortgage off.

glosoli

slhqoue wrote: »

Lenders will base decisions on what you can afford today, not some random rental income that may or may not materialise in a couple of years.

Yes I realise that. I wasn't suggested that our future rental income will be a determining factor in us getting a mortgage! Only that we're hoping it turns out that any mortgage repayments would be of approximately the same amount as any rental income we could generate (minus fees).

Youll need around 30% equity in the property in order to get a BTL mortgage, dont neccessarily need it now as you will be living it, as soon as you wish to rent it out you will need to have a BTL mortgage.

Sorry, I don't quite understand what you mean by 30% equity. Won't we own the property and have 100% equity in it? Sorry this may be my mistake.

Buy to let's start at 80% LTV for capital and interest, or 75% for interest only, therefore you would need to work at reducing the balance of the mortgage to those percentages to the value of the property prior to renting it out.

silvercar

Where are you going to live when you rent out the flat?

If you intend taking out a new mortgage on a new property, any lender will want your income to justify the new mortgage and the rental property to be on a BTL mortgage (that will require a 20%+ equity).

Be aware that any FTB help-to-buy or shared ownership scheme may not allow you to rent out the property.

AnotherJoe

slhqoue wrote: »

Lenders will base decisions on what you can afford today, not some random rental income that may or may not materialise in a couple of years.

Yes I realise that. I wasn't suggested that our future rental income will be a determining factor in us getting a mortgage! Only that we're hoping it turns out that any mortgage repayments would be of approximately the same amount as any rental income we could generate (minus fees).

Youll need around 30% equity in the property in order to get a BTL mortgage, dont neccessarily need it now as you will be living it, as soon as you wish to rent it out you will need to have a BTL mortgage.

Sorry, I don't quite understand what you mean by 30% equity. Won't we own the property and have 100% equity in it? Sorry this may be my mistake.

Yes it is. You only own 100% of the equity when you dont have a mortgage. If you buy a property for £100k and use £30k of your own money and £70k mortgage, you have 30% equity in the property.

Are you sure you are ready for the financial complexities of being a landlord if you dont understand this most basic fact?

csgohan4

Are you buying hoping for an investment or for a home, if the former, I think you need to think of a better business plan than 'hoping'.


Do you know how much it costs to evict a tenant who doesn't pay rent? You know it will take a few months at best. Can you absorb a few thousand in rent arrears and bailiff costs??

Thrugelmir

slhqoue wrote: »

Only that we're hoping it turns out that any mortgage repayments would be of approximately the same amount as any rental income we could generate (minus fees).

You are overlooking the tax implications. The rent will need to be higher than the mortgage repayments in order to generate the cash to make capital repayments.