Loan towards property purchase for rental

BACKTOBACK

I will shortly be receiving an inheritance of around £150k. I would like to purchase a property around £170k to rent out. From the area i could expect a rental income of around £700 per month. I would like to borrow £20k over 5 years. Would it be possible and a better option to obtain a personal loan for this amount, or what is the best option? I have noticed large fees around buy to let mortgages. Ideally i would like to borrow over 5 years around 3% if possible. Any suggestions..

greatcrested

 mortgage will be cheaper.

But what makes you think this is a good investmet for your £150K?

AnotherJoe

What GC said, why do you think this is a good idea? Financially it looks pretty poor to me.

Cakeguts

Here is a suggestion. Now with this virus and the changes to section 21 notices as well as the backlog of court cases makes me think that buying a buy to let just now is a bad idea especially if you don't have any experience of being a landlord.

SpiderLegs

Buying a property just before the Great Depression is pure madness.

yksi

Less than 5% gross return - this is abysmal. Once your costs are factored in you will probably be losing money, or at best, taking home less than just shoving it in the bank at 2%. In the current market you could find that by late 2021 the property is worth £120,000 - 140,000 and you owe more than it's worth. By the way, very few lenders allow you to use a personal loan for the purchase of a property. Pay a personal financial advisor for an appointment, select one who does not work on commission and get advice about starting an investment portfolio. If you aren't willing to do that then read all about Warren Buffett's million-dollar bet and consider opening a Vanguard account then whacking it all on a balanced stock market fund.

BACKTOBACK

Thank you for the comments. The reason for the buy to let is i would like to retire into the property myself in a few years time. I am currently living in a much more expensive area (Essex) where the equivalent property would be £300k which is out of my price range to buy. Renting at the moment but dont want to leave this area just yet as have work and family in this area.
Im not convinced about this great reduction in property prices anyway. Yeah there will be some repossessions but everyone needs a home and there is a shortage of houses with an increasing demand. Was just thinking of a 5 year plan to invest in a property which i could live in mortgage free in a few years time. 

Annisele

If you can't afford a £300k property even with a £150k ish deposit (less fees), I'd be surprised if you could get approval for an unsecured £20k loan. If you're thinking you could persuade a lender to count the £700 a month rental income towards affordability for the loan, unfortunately that's highly unlikely to be possible (as others have said, lenders don't usually allow personal loans to be used for house purchases). And that's assuming you can even get tenants, and that they do pay the rent - if they don't, in the short term there's very little you can do about that at the moment.

yksi

Food for thought, when there is demand for more houses but FTBs can't get mortgages (the 5% mortgages are all but wiped out and the lending criteria for 10% is more stringent) - what they do is they don't buy, they stay with their families and save more and they wait. Fewer buyers forces the prices down. On top of that, BTL has steadily become less attractive due to tax changes over the years and investors are now more likely to sell than to buy. Equalling more on the market, equalling pushing prices down.

A flat in my suburb went SSTC for 20% over the asking price in the first week that lockdown lifted - investors were falling all over themselves. It fell through, then SSTC again back at the asking price, then fell through, and was sold a third time for 11% under. Another property nearby went for 34% over (!) which also fell through and remains unsold (listed since February). Another one in a nearby suburb, two SSTCs fell through followed by a sale after a massive reduction. These are just the properties that I personally know of. All that circus because agents managed to whip up excitement by telling buyers there was a huge rise coming and buyers believed it. Reality was a bubble and crash in a few short months and now it's like walking on thin ice.

Fair enough about being unconvinced of the property bubble that's quite unpredictable right now. So put it somewhere relatively low-risk and sit on it for a year. It will be at far less risk than in the property market. You're thinking about £8,000 of lost rent, but a market fall will cost you more than that.

AnotherJoe

Bubble or no bubble, flat, rising, no movement,  re house prices, who knows, i wouldn't be jumping into a situation where you may get no rent for the 18 months it takes to evict your tenant.

BACKTOBACK

Okay just looking at other options now, what if i borrowed £150k from the halifax over 20 years. 5 year fixed rate at 1.93% with no initial fee (payments £754 per month) bought a £300k house. Then after 5 years i sold the house to move to a cheaper area. Is there anyway to work out approximately what the settlement figure would be on the mortgage after the initial 5 year term?