Optimal LTV for BTL

boyrobot

Considering mortgage rates being 4-5%, what would be the right Loan-to-Value to ensure that I break even on a BTL mortgage and can continue servicing the interest payments and other ownership-related costs? 

I'm aware of the various considerations when letting out a property: sufficient capital/deposit so the interest payments are not excessively high while not having too much equity if you want to purchase more property. 

Despite having been an "accidental landlord" numerous times due to my career, I'm not an investor though and have a straightforward question around affordability. 

I'm about to purchase a house in London (on a residential. mortgage) in which my family may only live for a year or two after which we may need to move again.
Although we could technically purchase a more expensive property, I want to ensure that we have a Loan-to-Value no higher than 75% maybe even less. 

This is mainly so that if we needed to switch the property to BTL, the property would not become a financial burden. 

Is 75% low enough in current circumstances? 

housebuyer143

BTL mortgages don't work like a traditional one, the loan you get is entirely dependent on the rent you can achieve and since the interest rates have gone up the loan you can get based on rental received has reduced drastically. It's also reduced further if you are a higher rate tax payer. 

What is the minimum loan you need at 80% and 75% LTV and what rent can be achieved? This will probably be your deciding factor on what you need to put into it. 

BTL are taken on interest only normally FYI.

boyrobot

The question was not about what a BTL mortgage is (if you read my post again I clearly refer to interest payments). I also mentioned that I have been a landlord previously so no worries about what a BTL mortgage is. 

Lenders will review a house to confirm its rental potential, certainly, to ensure that rental income will cover at least 125% and sometimes up to 150% of interest payments. 

My question is whether in current circumstances, a 75% LTV achieves that based on current parameters in the London market (and even outside London). I'm looking for people's experiences: are people managing to successfully obtain 75% LTV mortgages? I can't find that out right now as I won't be looking for a BTL mortgage for this property for a couple of years, hence the question. 

Rental yields don't vary that significantly across the South East. 

- 4% rental yields are typical in London - this looks about right for the property I'm looking at
- BTL Mortgage rates are around 5%

If going for 75% LTV
X/4 is the deposit
X is the property value
3X/4 is the loan amount 

With a 5% mortgage rate, monthly interest payments are (0.05/12)*3X/4=0.003125X

With 4% rental yield, monthly rental income is 0.04X/12=0.00333X
which represents only 106% of interest payments. 

It's looking like 75% LTV would be tough and I'd need to get much closer to 65 or 70% when switching my residential capital repayment mortgage to a BTL interest-only mortgage. 

dimbo61

"  I can't find that out right now as I won't be looking for a BTL mortgage for this property for a couple of years, hence the question. "

The mortgage market for both residential and BTL has changed so much in the last 15 months 
Who would guess that the BOE base rate would go from 0.1% to 4.25% and maybe more increases on the way.
With the Anti- Landlord attacks by Government, Councils and even housing charities would anyone want to be a Landlord right now.
Only you and your mortgage broker plus maybe your accountant can tell you if the figures add up.
Have a good read of the Shelter website and Justice for Tenants 

anselld

You can't avoid the fact that with 4% yield and 5% interest rate you are making a loss.  Having some extra equity tied up doesn't really change that.  You are banking solely on growth in house prices to recover your position;  likely in the long term but not certain and not changed by the LTV unless a lower LTV gets you a significantly lower interest rate.

boyrobot

Rental yield is relative to the full property price while mortgage rates are relative to the loan amount though so LTV is quite key there. The two rates can't really be compared in absolute terms. 

I'm not looking to make a huge return on investment fortunately, just holding onto the property if my family and I had to move out of the UK again, but of course that is only feasible if the property doesn't end up costing us an extortionate amount every month. 

Certainly agree with all the comments about how it is tough to be a landlord these days. As I mentioned I've repeatedly been an "accidental landlord" in the past but this is the first time I've had to give some thought to the implication of higher  rates.