Advice on Northern Rock and Buy to let please

LULULU1

Hello I have a 75k fixed rate mortgate with Northern Rock at 5.15% which runs out in May 2009. There is a £2300 redemption fee for early repayment.

I want to get a Buy To Let on another property.

What I am thinking about is increasing my mortage on my own property to 105k and using this as a deposit for a BTL mortgage. With Northern Rock not offering reasonable mortgages which is the best way to go.

Can I take out another mortgage with another company to raise this 30k.

Is 30k enough for a BTL mortgage (total cost of property 135k

To avoid redemption charges Should I take out a Bank Loan until next May to raise the 30k deposit.

Should I get a completely new mortgage.

Is this a completely mad idea. Really would apprechiate any help.

I am meeting with an independant financial advisor next week.

Thanks

Pobby

``Is this a completely mad idea.``

Not completely but pretty close to it I would say at the moment.I think you need to post more info here.For example,how much rent you are REALISTICALLY likely to get,the state of the proposed purchase,the area and so on.

Trollfever

If this is a new business venture, have you prepared a business plan and a cashflow forecast?

More info on starting a new business can be found here:

http://www.businesslink.gov.uk/bdotg/action/home?domain=www.businesslink.gov.uk&target=http://www.businesslink.gov.uk/

dunstonh

Is this a completely mad idea.

The most important bit of data is the rental yield and if the rent will exceed the mortgage payments. Yet you havent mentioned it.

Have you researched the risks of borrowing to invest and the consequences if it goes wrong as well as the costs, tax, legal requirements etc?

jamesd

If you go ahead you're probably going to be better off leaving the existing Northern Rock mortgage alone (I assume it's interest only, as it should be for a BTL for tax efficiency).

For the new one, raising the deposit from adding to your own mortgage is the best approach, or raising the whole purchase price on your own place if you can. The interest cost is still tax deductible from rental income for up to the BTL purchase price. If you can't fund the whole purchase from your own home's mortgage then BTL on the new purchase is the way to go. You go with your own place because residential mortgages are cheaper than BTL mortgages, so your possible profit is higher.

However, if you're looking at borrowing the deposit, you're looking at a particularly high risk investment, even higher than the normally high risk of BTL.

You should stress test your plans by verifying that you can pay the Northern Rock SVR (say 7.5%) for a year while that place has no tenant and also pay the other mortgage and your own regular bills. If you can't do this, you're probably taking too much risk for your current resources. You check the Northern Rock SVR affordability because that's what you'll be left with if the credit crunch continues and nobody will give you a new mortgage deal - lots of Northern Rock borrowers in this position at the moment. You check doing it with no tenant because the previous one may wreck the place and leave you unable to afford repairs until the insurance pays out and the rebuilding has been done.

If you fail the test, save hard and wait until you can pass it. Property prices are likely to fall or at worst be fairly stable, so there's no need to hurry.