BTL remortgage?

Bells1

Hi,
Not 100% sure of getting things on the forum! But here goes for a second time!

I am moving in with my boyfrined in January and I want to rent out my one bed flat which I have lived in for over 1 year, due to remortgage Aug '08. I have spoken with lender and they would require between £250-£450 for a right to let for 6 months. Or if this is not granted (been advised not to use moving in with my boyfriend as reason to let ) remortgage on a buy to let which would require the property being valued higher than it was last year (this should be as refurbed whole flat) or putting approx £10,000 in order to meet the requirements of the BTL mortgage of 75%, as my original mortgage was 100%. But do not have this kind of cash! Is it worth remortgaging to BTL as I would like to keep the property funding itself.
I should be able to let the property between £375-£425 pcm, and my mortgage repayments are £365. Then it will be look into the using an agent v do it ourselves- but that will have to be another thread!
Thanks

silvercar

Similar question to one asked by someone else yesterday. My reply backs up the info you have found:

"If you applied for a residential mortgage with the intention of renting it out, that's fraud, obtaining money by deception etc....

If you let a property that was genuinely your home, that is a breach of your original mortgage conditions. Not illegal, but a civil matter, in legal speak, between you and your lender. Provided the mortgage payments are met then the mortgage company are unlikely to find out. If they did find out then you could ask permission to lease at that point. Ask now and there is the risk that they will put up your rate or insist you move to a new product, though they could just say yes.

You need to have the correct building insurance in place and you need to declare the rent to the taxman (before a tenant does it for you)."

phlash

I'm intrigued....

When you said the property would fund itself, i.e. rent would cover the mortgage, what type of mortgage do you have?

You said monthly repayments were £365. Now in my quick calculation, a mortgage of £90000 @ 5% is a INTEREST ONLY repayment of £375. Either, you bought a very cheap flat and didnt spend £90000, or you are on interest only. I'm intrigued as to which, because it does make a difference.

If it is interest only, then at 6% the same £375 monthly charge would become £450, therefore not "funding itself".

Besides, my definition of "Funding itself" would be a rental income that covers mortgage interest, mortgage capital repayment, repairs, legal fees, ground rent, letting fees etc.

I will look out for a reply.

Bells1

Yes the flat (leasehold) was a cheap one - hence the new kitchen and bathroom and I have repayment mortgage.

Bells1

Thank Silvercar, I will read the other posts.

phlash

Ultimately you have to weigh up risk against reward.

What is the risk of interest rates pushing your repayments past your rental income? (This you can easily calculate different scenarios)

Draw up a spreadsheet with income and outgoings, does the investment make sense? Include fees, maintenance etc, cost of personal hassle, voids.

Think about cash flow, would you have enough money to fix the boiler if it broke?

Whats the outlook with house prices? Think about your plan of action in all three scenarios of rising, static and falling prices. Draw up a simple table with pros and cons and the probability of the outcome based on your own background research.

If you were to invest the level of money you have in the house in the stock market, you would certainly do many hours of research. If you can't be bothered, then that is also a risk you take and needs weighing up.

In my opinion, the outlook is biased towards the side of adverse risk, especially in the flats sector. This is a conclusion you would need to come to yourself though.

All the above are simple tools/analogies that accompany simple investments, a BTL is an investment, just please make sure that you approach it with that mentality. I have known lots of people do it, and now cannot make thesums add up, including my landlord who's rent does not even cover the interest on his mortgage and has a depreciating asset.

Gorgeous_George

You need to get a valuation done at the time you start letting it out. This is useful for CGT calculations if/when you sell.

The BTL mortgage interest can be off-set against rental income.

Additionally, the interest on any difference between your mortgage and the valuation should be able to be off-set against the rental income for tax purposes at the 2nd property's mortgage rate (silvercar may be able to confirm) as it is the purpose of the loan that matters. If you sold rather than BTL'd, you could have reduced the mortgage on the 2nd property so this makes it a legit 'business' expense.

Don't forget to factor in voids. In a falling market, 1-bed flats will be hardest hit IMHO.

GG

Sammy85_2

Hi, ive been in a similar situation to yourself.

To change to a BTL product was going to be costly, so we obtained a certificate to rent from the bank enabling us to rent out the property. It cost a one-time admin fee of £100 and is self-renewing each year. (N*****T).

Problem solved. Since then we've bought 2 more houses and our particular bank doesnt seem to mind what you do with them, so long as the mortgage gets paid each month.


Hope that helps.

silvercar

sammy85 wrote:

Problem solved. Since then we've bought 2 more houses and our particular bank doesnt seem to mind what you do with them, so long as the mortgage gets paid each month.

Natwest only offered me BTL mortgages for rental properties, though the rate was good at the time. certificate to rent sounds like a good compromise, though I wonder if they will continue year after year with that.

Georgeous_Geaorge wrote:

You need to get a valuation done at the time you start letting it out. This is useful for CGT calculations if/when you sell.

The BTL mortgage interest can be off-set against rental income.

Additionally, the interest on any difference between your mortgage and the valuation should be able to be off-set against the rental income for tax purposes at the 2nd property's mortgage rate (silvercar may be able to confirm) as it is the purpose of the loan that matters. If you sold rather than BTL'd, you could have reduced the mortgage on the 2nd property so this makes it a legit 'business' expense.

The CGT calculation would be based on proportion of time it was let out; though having lived in it first gives big tax advantages( extra PPR for the last 3 years of ownership and letting relief).

You can claim mortgage interest as an allowable expense to set against rental income up to the value of the property when you first started letting it. Where you secure the loan is not important, it is the purpose of the loan that counts. So if you can demonstrate that the mortgage was taken (or is retained) to fund the letting of the property you should be OK.

moneysavinmonkey

why does nobody sell their house when they move to another one anymore!

Gorgeous_George

moneysavinmonkey wrote: »

why does nobody sell their house when they move to another one anymore!

1. Selling a house is stressful.
2. Relationships don't last.
3. Property !!!!!! on TV.
4. Anyone remember when BTL made sense?



GG