Unorthodox flat buyer advice needed

theroyale

I have made an offer on my first ever flat and waiting now for legalities to go through. However I have an unorthodox lifestyle which makes me wonder if a mortgage is my thing. Need some advice please.

I am self employed in a high paying line of work however I like to take several months to a year off at a time, usually spending it travelling, before coming back to the UK and getting back into work.

In the immediate term I plan to live in the flat and have a lodger in the spare room which is within the terms of the mortgage.

Combined with intermittent earnings this should still comfortably cover the mortgage payments.

Then at some point (5-7 years time) I may move fairly permanently abroad, with only limited comings and goings to the UK.

The flat is in inner London, zone 3. I am confident about its rentability.

The mortgage term is 25 years, and like most people I hope to remortgage at the end of each fix.

My questions would be:

How easy is it to manage a rental from abroad?

Would I be able to make a monthly 'income' from the flat when fully rented out, or will it just cover the mortgage + managed rental overhead +repairs?

Any issues that people see with this arrangement?

AnotherJoe

Why are you buying a flat ?
There seem to be quite limited upside and a downside of a lot of hassle and legalities, apart from the risk.
I know it may seem that you can hand management off to an agency but the reality is they don't really take that much load off. There's a lot of decisions that need making. Something breaks or is going wrong, who takes the decision when to fix, when to repair, what is reasonable to allow for costs and so on. They will need to contact you and as an absentee you wont really have much idea either.
Also the cost of minor jobs jumps up because you can't do them yourself, so (say) replacing a broken shower head instead of a trip to B&Q for a new one ends up with a plumbers visit and and fitting a whole new fitting, and the agency charge you on top of the plumber, and so on. Or if you were there you might look and decide the tenant broke it so they can just buy their own.
Long winded way of saying more hassle more cost. Will you Be contactable on your travels? And want to be contacted?

[Deleted User]

You may have to convert to a buy to let mortgage which will require a higher deposit once you decide to rent the entire flat out (if you move out, and leave a lodger in sole occupation, they will be a tenant not a lodger).

worried_jim

Seven years is a long way off, buy the flat and review your options in 5-6 years time. You may have to sell but you will probably have some equity that you can roll into your next project/adventure. Good luck!

theroyale

Thanks all for your replies.

AnotherJoe, I'm buying a flat because I've rented in London for too long and while its worked out well overall I'd like a place to call my own and get in nicer furniture etc. Also my current landlord won't let me take a lodger in, so coughing up a deposit for my own place and then taking in a lodger means my outgoing on my own place would actually be lesser per month (and I gain equity).

Re repairs while being an absentee landlord, will it really be as often as you suggest? This is a (brand) new build. In the Victorian place I'm currently renting it has been just about once per year that I've had to ask my landlord to look in to something. I will be contactable on my travels. Appreciate your points that small fixes can end up costing a lot more if left to an agency rather than the landlord doing it himself.

Worried Jim, thanks that's something I should keep in mind. that I can always sell in 5-6 years time. (Although I don't think I'd want to).

Benight

theroyale wrote: »

I have made an offer on my first ever flat and waiting now for legalities to go through. However I have an unorthodox lifestyle which makes me wonder if a mortgage is my thing. Need some advice please.

I am self employed in a high paying line of work however I like to take several months to a year off at a time, usually spending it travelling, before coming back to the UK and getting back into work.

In the immediate term I plan to live in the flat and have a lodger in the spare room which is within the terms of the mortgage.

Combined with intermittent earnings this should still comfortably cover the mortgage payments.

Then at some point (5-7 years time) I may move fairly permanently abroad, with only limited comings and goings to the UK.

The flat is in inner London, zone 3. I am confident about its rentability.

The mortgage term is 25 years, and like most people I hope to remortgage at the end of each fix.

My questions would be:

How easy is it to manage a rental from abroad?

Would I be able to make a monthly 'income' from the flat when fully rented out, or will it just cover the mortgage + managed rental overhead +repairs?

Any issues that people see with this arrangement?

A mortage, at least a typical residential one, would not be for you based on what you have posted.

1. Lenders don't like the self employed, they prefer those in full time, permanent employment (but a good broker could sort something out if it was only the self employed being the issue)
2. Lenders want to see regular income. If you are spending periods of up to a year not working, that is going to mess up your income, sorry.
3. A residential mortgage is designed for those who plan to use it to live in. You can go on holiday, but periods of up to a year are not considered holidays away
4. Lenders will usually expect you to live and work in the UK - you being abroad for periods of up to 1 year will not suit most lenders requirements.

How easy is it to manage a rental from abroad? - plenty of Chinese seem to manage it, particularly in London

Would I be able to make a monthly 'income' from the flat when fully rented out, or will it just cover the mortgage + managed rental overhead +repairs? - depends on how much you borrow, what the borrowing rate is, whether you are including capital repayment in that, what management fees you are paying, what repairs cost are .... and what the rental income actually is, and associated occupany rate..

need_an_answer

Personally I would look to buy then sell rather than rent it out.

Its almost impossible to say what the situation will be for new rental properties in 5-7 years time simply because legislation is changing so often and squeezing private LL's and their margins for return.


I began the LL journey around 6 years ago and even at that point with an unmortgaged property still found it hard to cover much more than the running costs.

Over the next few years I suspect that it will become less and less attractive for a casual LL or one that only has a single property. Whilst most is speculation at present the general view seems to be more in favour of a long term tenancy with the onus on the LL for covering fees.


You would at best require a fully managed service which is likely to cost somewhere between 10-15 % of you monthly income on top of the cost of repairs and maintenance, which you will need to pay full trade rate for. Being a non resident LL doesn't make it easy for you to do small maintenance jobs for your tenants so you may need to consider that even the smallest of repair is going to attract a 1/2 hour labour charge.
Its easy to rent from abroad however most things are easy if you are willing to pay for them!


Without knowing what your mortgage costs or the service charges are for the property you would purchase its very difficult to project if there will be a monthly profit.
You would be responsible for all set up fees on the rental,after june of this year so realistically your first months rent could easily evaporate in some form of agents fees.

I feel that the way things are going there is more of a desire to detract the "accidental LL" and the one property LL in favour of those who are able to run their venture as a business rather than a vehicle to make use of whilst you go off and pursue other ventures.

Others may disagree with me but that's my opinion.

Buy your flat,live in it,sell it when you need to move abroad and set up there if needs be....set your spare income into a different pension pot other than property.

You say you wouldn't want to sell the property if you moved abroad,but situations change and you may not want a tie to the UK going forward...and if you do and choose to keep the property its never going to be easy to keep an eye on it from afar.
It ceases being your home and realistically you are unlikely to move back and find it in the same state that you left it,irrespective of how well the tenants may have looked after it. A tenant will never treat their rental property anything like you will,simply because they do not have the investment in it. Things will get broken,need fixing and the buck stops with you to fund that.

A rental property at times can be a very expensive hobby.

steampowered

I would just buy the house now. 5-7 years is enough time to make it worth buying over renting.

You can assess what to do with the property if/when you decide to move abroad.

There are too many unknown variables to decide now. You don't know what mortgage interest rates will be in 5-7 years time, or what rents will be, so don't know whether the rent (minus letting agent fees and cost of repairs) will cover your costs.

You would also need to consider tax. Depending on where you move to, the rental income you receive may be taxed in that country.

theroyale

Benight, It is possible while self-employed to be the director of your own limited company, then pay yourself a monthly salary apart from dividends, this is what I do, and lenders seem happy with it. What they ask for is SA302 and company accounts showing 'x' amount of personal income.

Thanks need an answer and steampowered, those were really useful. I shall bookmark this page for future reference. The way to go seems to be to decide in 5-7 years time what to do with the flat (and keep it in good resaleable shape until then while living in it). The neighbourhood is at the beginning of a regeneration curve in London so I believe it has excellent potential to appreciate.

I am interested in the opinion of 'need an answer' about the accidental landlord versus the business landlord. Are you saying the former is being discouraged, or is the latter being discouraged?