Selling a share of our flat to keep a help to buy property

mitworray

Good morning ! I was hoping someone could advise if possible.

Two years ago we bought a help to buy flat in London (560K flat, mortgage of 320K, rest was deposit and the government help to buy loan). We will likely leave London in a few years time to return to the South West,and will have to sell the property. Ideally we would love to be able to keep the flat but are obviously aware to rent it out we need to own at least (25%?) and will have to get rid of the help to buy loan first, which we are absolutely not in a position to do. 

A very good friend of mine wants to invest in some properties and it got me thinking whether it was possible to sell him a share of the flat (e.g 25%), and then do a buy to let mortgage on the rest of property (paying back the help to buy loan in the process) and then renting the property out. 

Is this possible? I hope this makes sense - very grateful for any thoughts to understand if this idea is worth exploring further.

AdrianC

No. You will not find a lender to lend 100% of the value of your 75% ownership.

Have you even worked the numbers to see if this lettings business will be profitable, once you've paid somebody else to manage it...?

numbercruncher8

Have to agree with Adrian.

I suspect the rent values will not make a profit. A rental mortgage cost might be around £1.5k, plus you have to pay the service charge, plus in 3 years the HTB element kicks in. That's before commissions paid to the management agency. 

Depending on where it is in London there may be high competition for rentals, and someone with £2k a month to spend on rent could afford a more expensive property than £560k.

It may be easier to simply sell all of it, if you have a friend interested in it.

mitworray

Appreciate the thoughts, thank you!

The rent of the property would be at least £2000 a month....current bills all in per month are about £1700 but I appreciate they would go up with a buy to let mortgage and admin costs etc. 

Slithery

mitworray said:

Appreciate the thoughts, thank you!

The rent of the property would be at least £2000 a month....current bills all in per month are about £1700 but I appreciate they would go up with a buy to let mortgage and admin costs etc. 

So after allowing for only 10 months a year occupation you're already running at a loss, and that doesn't include all of the other LL costs that you haven't accounted for yet either.

Just sell the property, it makes much more sense.

macman

How is a potential lender going to repossess the property (should you default) when a third party owns 25% of it? I don't think you've thought this one through...

AdrianC

mitworray said:

The rent of the property would be at least £2000 a month....current bills all in per month are about £1700 but I appreciate they would go up with a buy to let mortgage and admin costs etc. 

So £24k/year against a value of £560k. Raw yield of just under 4.3%.
Knock 10% off for lettings management. £21.6k. Yield down to 3.8%.
Less the current outgoings, £20.4k, leaving £1,200. Yield of 0.2%.
Now increase the mortgage interest cost, make an allowance for bad debts, for damages, for voids...

You are subsidising your tenants. You are paying them to live in your flat.

Why do you want to keep a more than half million pound asset in a city you live nowhere near, and why are you willing to borrow more than four hundred grand to do so? Wouldn't it make far more sense to sell it and make use of the equity? After HtB etc, how much equity is there? How much will you have to put into it to clear the HtB and bring it up to 25% equity?

steampowered

mitworray said:

Ideally we would love to be able to keep the flat but are obviously aware to rent it out we need to own at least (25%?) and will have to get rid of the help to buy loan first, which we are absolutely not in a position to do. 

Ideally I would like a £300k Lamborghini. Too bad I don't have £300k sitting around.

You simply cannot afford to do this.

Even if you could afford to do it, why would you want to invest all of your money into a highly leveraged London flat, given all of the problems and costs that will entail (you'll be paying income tax on the rent; higher rate stamp duty when you buy a property of your own; capital gains tax when you sell; a letting agent to manage the property; service charge and ground rent ...)

numbercruncher8

I know some people in similar situations, although for a property bought for slightly less on the HTB scheme - £455k and one year older.

The flats in the block are really easy to rent because of the location. But they are not very easy to sell, because they are not eligible for HTB, and they compare quite unfavourably to other new flats (which do have HTB), and are much poorer money on  other metrics to older properties and also carry an expensive service charge.

Also going against it is that there are multiple people in the block wanting to sell, and the only real way to differentiate is on price. Currently, the flats have tumbled in asking price, the lowest is now £400k (and still not sold). 

Selling out in their case would mean their deposit disappears, renting it out preserves it, in the hope that the market conditions become better.

I'm guessing this is the thinking here. If there was profit on the table, why not take it?

Grumpy_chap

mitworray said:

A very good friend of mine wants to invest in some properties 

Sell the flat to the friend.  Share the saving on EA costs.
Enjoy your new life in the West Country, hassle free.

mitworray

Many thanks for all the responses, sounds like one to avoid....really appreciate your time!