Mortgage Advise

Lloyd90

Being very fortunate I have been given some money by a family member. I appreciate that I am very lucky to be in this situation. It is on the condition that the money can not be squandered and can only be used on a house purchase.

I am currently living and a student in Bristol. The amount is £100,000 so not enough to buy outright over here. Therefore I am waiting until I finish my studies and get employed before I can get a mortgage. Starting salary for my job would be around £28k with high employment opportunities.

Now I am considering splitting my money in different ratio's in order to try and buy two properties as I am currently renting in Bristol and have been a student also and can see that the property here is very sought after etc.

I am just wondering, If I put my entire deposit into my own home purchase, then remortgaged out the deposit for a second property, can you claim mortgage interest relief on both homes ? (As write off the extra interest payments on your original home, plus the interest from the second purchase ?)

Or is it better to just keep a large deposit back and use that for the second purchase ?

Current changes to the buy to let laws would not effect me at my current salary and I am just considering this as I think it would be a wise use of the money and a good opportunity to put myself in a good position for future.

marksoton

I think you need to do a bit more research.

If it were me i'd use the whole deposit to get my own place and a great start to working life.

Have you even looked into what being a landlord entails? Especially a student one.

And that's before educating yourself regarding BTL mortgages properly.

Lloyd90

Hi Mark, thanks for the reply.

I have been looking into buy to lets etc over the past few months. I wouldn't necessarily want to rent to students.

I have lived in professional house shares and have looked in areas for a possible HMO near local hospitals hopefully looking to rent to nurses etc.

Although one option is to put all my money into my own home with interest rates very low at the moment it could possibly be good to get two properties.

I do agree however it is not to be rushed into and done on a whim, proper research and advice will be sought but as I'm not in a position to even properly consider until next summer I'm not rushing.

Reading and posting here is just a start into research of options

marksoton

Lloyd90 wrote: »

Hi Mark, thanks for the reply.

I have been looking into buy to lets etc over the past few months. I wouldn't necessarily want to rent to students.

I have lived in professional house shares and have looked in areas for a possible HMO near local hospitals hopefully looking to rent to nurses etc.

Although one option is to put all my money into my own home with interest rates very low at the moment it could possibly be good to get two properties.

I do agree however it is not to be rushed into and done on a whim, proper research and advice will be sought but as I'm not in a position to even properly consider until next summer I'm not rushing.

Reading and posting here is just a start into research of options

Ok fair enough. But given anecdotal evidence on here Bristol house prices are rising fast. Given that fact £100K is going to be stretching it for two properties. Especially given you'd have to be happy living in one yourself.

Have you looked at potential yields? The higher deposits required on BTL mortgages and again what being a landlord involves?

I'm no expert but i'm sure people who've done it/are LL's will comment in time.

exiled_red

I would just focus on one property for the time being. I have no idea how much the properties are going to cost but as you have said the £100k won't buy you anything outright and given that you need a high amount of equity for a buy to let mortgage I am imagining that you would if you were to put the minimum amount of equity required into the buy to let property and the rest into your own home you probably wouldn't get great rates and might struggle to meet the affordability payments.

To me going from owning no property to owning 2 seems like trying to run before you can walk. I would put most of the money into a deposit for my own home get a good rate and see where I stood financially in a few years time before going into the buy to let market.

Dird

Buy 1 & rent the other rooms out?

Lloyd90

I was going to do that with the house I lived in as well.

If I had not been given any money I would be house sharing for a few years anyway.

In the area I have looked the houses are around £220,000 for a 3 bed (Possibility to convert a downstairs dining room into bedroom 4). WIth a 25% deposit this would mean £55,000 plus costs (Plus stamp duty of £8500) so around £65,000. Probably a bit more with some work doing it up and putting in decent fire detectors etc (I wouldn't expect a shabby place for people to live in).
Therefore around £75,000 (75% of my money) would be into the letting house.

Rooms alone in this area rent for £375-450 depending on size and how nice the house is. Area is walking distance to major hospital and several big employers of graduate types, plus a studenty area aswell.

This would therefore leave me with around £25,000 (But I also have a few thousand of my own money saved plus my girlfriend is saving for our own house too) so I imagine we would have around £35,000 initially to put down on a house of our own first. Again we would likely to looking at places around the £200-220,000 mark.

This is all just a plan at the moment and I do realise none of it may come off at all.

Worst case scenario is I can use my money for a large deposit on a single home to live in

Another option I have considered is a buy to let flat afterwards which seem to be selling for around the £140,000 for a nice one in Bristol, which a personal friend has just remortgaged and bought 2 of. They are renting for around £700 PCM with 25% down on the mortgage.

exiled_red

I would do the maths on both situations, if you are putting £75k into the buy to let that leaves you with £25k for your own property assuming that you savings will end up going towards costs and furnature etc on a £220k house you end up borrowing £195k which means a LTV of ~90% - you aren't going to get a good mortgage rate with that LTV and over a 25 year mortgage your repayments will likely be upwards of £1000 a month which on £28k a year gross pay will be more than half your monthly income and that is before you consider council tax, bills, student loan repayments etc. I don't know if you would meet affordability criteria on that if you were buying on your own. If you put all the £100k towards the house you would live in you would have 55% LTV and your monthly repayments would be hundreds of pounds less.

If buying with your girlfriend and you are putting in much more money than she is you might need to be careful as to how much of a share each of you has and get something legal drawn up because if the worst happens and you split up you could end up losing alot of your investment in the property. Not a sitution you will be happy thinking about but you need to protect your interests.

marksoton

Lloyd90 wrote: »

I was going to do that with the house I lived in as well.
It's a damn site safer,generally....
If I had not been given any money I would be house sharing for a few years anyway.
I'd question if you should change that plan...
In the area I have looked the houses are around £220,000 for a 3 bed (Possibility to convert a downstairs dining room into bedroom 4). WIth a 25% deposit this would mean £55,000 plus costs (Plus stamp duty of £8500) so around £65,000. Probably a bit more with some work doing it up and putting in decent fire detectors etc (I wouldn't expect a shabby place for people to live in).
Therefore around £75,000 (75% of my money) would be into the letting house.
You might want to check those figures.. I've just seen you mentioned being exemp form higher rate SDLT based on your salary. As far as i'm aware that's irrelevant. You just wouldn't be penalised as hard as someone paying higher rate tax...
Rooms alone in this area rent for £375-450 depending on size and how nice the house is. Area is walking distance to major hospital and several big employers of graduate types, plus a studenty area aswell.
A major hospital wouldn't be a selling point for me. If anything a downside. Those sirens make a lot of noise!
This would therefore leave me with around £25,000 (But I also have a few thousand of my own money saved plus my girlfriend is saving for our own house too) so I imagine we would have around £35,000 initially to put down on a house of our own first. Again we would likely to looking at places around the £200-220,000 mark.

This is all just a plan at the moment and I do realise none of it may come off at all.

Worst case scenario is I can use my money for a large deposit on a single home to live in

Another option I have considered is a buy to let flat afterwards which seem to be selling for around the £140,000 for a nice one in Bristol, which a personal friend has just remortgaged and bought 2 of. They are renting for around £700 PCM with 25% down on the mortgage.

As said, and admitted, much more thorough research required.

Lloyd90

exiled_red wrote: »

I would do the maths on both situations, if you are putting £75k into the buy to let that leaves you with £25k for your own property assuming that you savings will end up going towards costs and furnature etc on a £220k house you end up borrowing £195k which means a LTV of ~90% - you aren't going to get a good mortgage rate with that LTV and over a 25 year mortgage your repayments will likely be upwards of £1000 a month which on £28k a year gross pay will be more than half your monthly income and that is before you consider council tax, bills, student loan repayments etc. I don't know if you would meet affordability criteria on that if you were buying on your own. If you put all the £100k towards the house you would live in you would have 55% LTV and your monthly repayments would be hundreds of pounds less.

If buying with your girlfriend and you are putting in much more money than she is you might need to be careful as to how much of a share each of you has and get something legal drawn up because if the worst happens and you split up you could end up losing alot of your investment in the property. Not a sitution you will be happy thinking about but you need to protect your interests.

For the home with my girlfriend she is on £43,000 PA wage so I believe we would meet affordability criteria for a £220,000 home.
Also I agree with you totally about protecting interests, my cousin recently bought with his partner and they had it written by their solicitor that should they separate etc she would get her deposit back first as she paid most of it. I would be looking into similar.

I will need to look into what the extra mortgage cost of having say a 10% deposit over the long term, vs a 40% ish deposit is and weight this against the cost / benefits of possibly having a second home rented out.

marksoton wrote: »

As said, and admitted, much more thorough research required.

Indeed Mark, although asking questions on here is certainly helping to consider options and bring up some stuff I may not have thought of.

Appreciate you guys looking out for me lol :money::beer:

EDIT to add : In regard to your comment "You might want to check those figures.. I've just seen you mentioned being exemp form higher rate SDLT based on your salary. As far as i'm aware that's irrelevant. You just wouldn't be penalised as hard as someone paying higher rate tax..."

I think you have understood me wrongly, I was referring to the changes in mortgage interest relief, not changes to stamp duty. The mortgage relief changes are based on your tax bracket, the stamp duty I believe is not.

Thrugelmir

The question that potential lenders will ask is can you support the entire mortgage debt (i.e. both properties) on your income of £28k. They'll assume the property to be empty or the tenant defaults. Then it's no just the mortgage to pay but all the other costs a well.

A pension may well be a better option for part of the money. A BTL is an option to consider once you've put some basic financial building blocks in place.