First Time Buyer

LydiaGrace

Hello,
Just wanting some general financial advice. My husband and I are ready to buy a small 1 bedroom flat, with a 5% deposit. We have the eventual plan to turn it into a buy-to-let mortgage and buy a second family property. Just wanting to know how financially viable this is, any advice from those who have already done it, are extremely welcome.

Thank you
Lydia

Cakeguts

Why such a small deposit?

Could you afford to pay two mortgages without getting any rent? If the tenant stops paying rent it can take over 6 months to get possession from the courts. In that time you would still have to pay the mortgage and pay for repairs.

The fact that you are only putting down a 5% deposit makes me think that buy to let is too expensive for you.

Rambosmum

And don't forget, when you buy the second home, you'd have to pay the extra 3% stamp duty.

tlc678910

Hi OP,
A buy to let mortgage usually requires a 25% deposit so you would have to pay the flat down a bit first as well as save the deposit for your next place.

A lender will normally require one of you to earn over 20/25K. They also usually require the rental value to be 125% of the interest only mortgage payment for the property and some lenders are now putting this up to 140% I believe.

As mentioned already your second property purchase will carry 3% stamp duty over and above any stamp duty that would usually be due. An extra 6K stamp duty on a 200K purchase could cancel out the first year or two of profit on your rental flat.

If you are a higher rate tax payer (or rental income pushes you into a higher rate tax bracket) not all of your mortgage interest is deductible when calculating your tax so you could find you have a tax bill even if you make no "profit". If this applies to you or your partner look into it.

Definitely worth lots of number crunching to make sure you feel the benefits outweigh the costs and risks.

Tlc

Tom99

I would buy the flat now and worry about a BTL another time after you have settled in and saved some money.

Davesnave

I agree with Tom above; you're jumping the gun, anticipating becoming landlords before you have the resources to put down a decent deposit as FTBS.

You're correct if you anticipate that a 1 bed flat won't make an ideal longer term home, as most people grow out of them quickly. Depending on its exact nature, it might not even make a great investment.

For those reasons, I'd look at whether the strategy of buying a one bed is your best option, rather than continuing to save for something larger.

Crashy_Time

http://www.marketoracle.co.uk/Article60558.html

steampowered

In order to achieve your plan, you would need to have saved:

- enough equity to fund a BTL mortgage on the 1-bed flat (requiring a 25% deposit)
- the deposit for your second property (perhaps 10%)
- the additional rate stamp duty on the new property
- a reserve to cover the expenses associated with being a landlord

There's nothing wrong with your plan but I suspect you are some way off having enough funds to do it.

By then your circumstances might have changed - for example perhaps you would prefer a larger family home rather than a BTL property.

Crashy_Time

https://www.landlorddebtadvisory.com/news/number-of-landlords-reducing-portfolios-surges/

DaftyDuck

Op, by all means take the wise advice above. Ignore Trashy Crime, he's just a ghost of a person who haunts these forums, wailing and gnashing his teeth with regrets of times past and lost.

Crashy_Time

DaftyDuck wrote: »

Op, by all means take the wise advice above. Ignore Trashy Crime, he's just a ghost of a person who haunts these forums, wailing and gnashing his teeth with regrets of times past and lost.

What advice would you have for the OP though? I have posted two relevant bits of information.