Is our let-to-buy project a good idea in the new BTL environment?

zoothornrollo_2

We have been to a couple of mortgage brokers to see if we can remortgage our two-bed flat as a let, release equity and buy somewhere slightly larger with a garden.
They have both made the numbers work - just.
We would go from having 50% equity in our flat with £1,025 a month mortgage payments to 25% equity and an interest-only BTL mortgage of £550 a month.
We could let the flat for c.£1,350 a month. But we would be paying tax at the higher rate on that, plus costs etc. Maybe end up with what £300-400 a month from it?
On our new property we would face a big stamp duty bill of £35k, leaving us, just about, a 15% deposit. Our new mortgage payments would be £1,750-2,000k (depending on whether lender will approve an extended term).
We also face an early redemption charge on our 5-year fix of £4k (dropping to £2k in Jan), which is something we could cover out of savings but would leave us without much cash savings.
£2k would be 40% of our net combined monthly income.
Obviously have to factor in slightly higher council tax and bills too.
We have very low outgoings and even after big payments into company pensions we save £600 a month (at the moment!). No other debts.
Now a few years ago this would have been an easier choice because we would not have the whacking great SDLT bill and we would have better tax relief.
We are certainly comfortable with £1,750 mortgage payment - especially with £300-400 from the let. But £2k just feels a bit scary when we are currently paying just over £1k.
Any advice welcome.

tom9980

What if the tenant cannot pay the rent? It can take on average 40 weeks total to legally evict a tenant.

Could you afford a large £20k bill for a roof repair, new kitchen or boiler if something went wrong?

What happens if we get a 2008 style or worse financial crash and one of you loses your job, how will you cope?

Have you brushed up on all the draconian rules and regulations in place relating to landlords and tenants? It's also likely we will see landlord licensing and possible rent controls as normal within 20 years. You should expect them to become less favourable towards landlords. Most of these rules are fine by me but the court system is slow and cumbersome which suits non paying tenants and leaves you with bills in the thousands all too often.

I hope you are aware that employing a letting agent will not absolve you of responsibility in any way even if they are at fault, they will gladly charge you 10% per month for the privilege.

Are you aware of s24 and the tax implications going forward?

It should be noted I am a landlord and have answers to all of those questions.

Cakeguts

Unless you can afford to pay both mortgages without any rent coming in this is a very bad idea. Plus how much research have you done in the area of your flat to find out it there are a) a glut of similar flats on the market b) it is in an area that tenants want to live?

People tend to assume that you can let any old property. It doesn't work like that. If you are serious about renting property you buy a property that fits the market for the area that you want to run your letting business in.

I am a landlord and in the area where I let properties there are a lot of 2 bed properties available to let so prices are low to attract tenants. There is a shortage of 3 bed houses so we let those and we always get several people interested in any property coming onto the market which doesn't happen very often.

zoothornrollo_2

Cakeguts wrote: »

Unless you can afford to pay both mortgages without any rent coming in this is a very bad idea. Plus how much research have you done in the area of your flat to find out it there are a) a glut of similar flats on the market b) it is in an area that tenants want to live?

People tend to assume that you can let any old property. It doesn't work like that. If you are serious about renting property you buy a property that fits the market for the area that you want to run your letting business in.

I am a landlord and in the area where I let properties there are a lot of 2 bed properties available to let so prices are low to attract tenants. There is a shortage of 3 bed houses so we let those and we always get several people interested in any property coming onto the market which doesn't happen very often.

Yes we have checked out the viability of the let - it is a very popular area and letting it out immediately would be 'no problem' according to letting agents we have spoken to.

We would be able to afford both mortgages yes. It would be close to 50% of our net income but that is manageable for a month or even a few.

zoothornrollo_2

tom9980 wrote: »

Are you aware of s24 and the tax implications going forward?

No but the rest of your points we have considered.

sparky130a

zoothornrollo wrote: »

Yes we have checked out the viability of the let - it is a very popular area and letting it out immediately would be 'no problem' according to letting agents we have spoken to.

You took a shovel to that meeting then? For the salt..

Did they say at what price point?
How to mitigate lease gaps?
How to expense repairs etc?
How to chase tenants who do not pay?

The list goes on...

Crashy_Time

zoothornrollo wrote: »

No but the rest of your points we have considered.

Amazing how many people are not aware of this?

zoothornrollo_2

Crashy_Time wrote: »

Amazing how many people are not aware of this?

Is this the steadily worse mortgage interest tax relief for landlords?

Crashy_Time

I think most of it is covered here....


https://audioboom.com/posts/5793636-sell-up-hold-or-expand

AnotherJoe

From your figures, SDLT would wipe out the next TEN years profit on the BTL. Surely on that basis alone this makes it a non starter.

I wonder if you've also factored in the increased mortgage payments on your new residence (deducting those from any nominal profit) since you'd have a much poorer LTV.

This is such a poor financial deal on these points alone let alone the risk and hassle I can't believe you haven't discounted it immediately.

Crashy_Time

tom9980 wrote: »

What if the tenant cannot pay the rent? It can take on average 40 weeks total to legally evict a tenant.

Could you afford a large £20k bill for a roof repair, new kitchen or boiler if something went wrong?

What happens if we get a 2008 style or worse financial crash and one of you loses your job, how will you cope?

Have you brushed up on all the draconian rules and regulations in place relating to landlords and tenants? It's also likely we will see landlord licensing and possible rent controls as normal within 20 years. You should expect them to become less favourable towards landlords. Most of these rules are fine by me but the court system is slow and cumbersome which suits non paying tenants and leaves you with bills in the thousands all too often.

I hope you are aware that employing a letting agent will not absolve you of responsibility in any way even if they are at fault, they will gladly charge you 10% per month for the privilege.

Are you aware of s24 and the tax implications going forward?

It should be noted I am a landlord and have answers to all of those questions.

Begs the question, why did so many get into BTL, and why are you a landlord, does the rental income make it worth it?