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I did post few weeks ago about us trying to use equity to buy a second house. Well, we have found it.
So just to remind you ;
- our house is worth little over 650k with 500k equity
- we make 61k joint income with 2 kids and about £375/ month childcare costs
- the new house is 475k and it will be our main residance
- our existing house will become BTL and can rise £2500 / month RI ( we already have someone)
Now, base on that, do you think this adds up? Can we buy this house?
I will see our bank mortgage advisor on Thursday to find out but is it even possible?
Congratulations on finding the house.You received 21 answers to your original post and it was explained to you that this is possible.The rent of £2.5K per month will support a borrowing of circa £376,000, so when you pay off your existing mortgage of £150K, you will have approx. £226K deposit towards your new home, meaning you will have to finance circa £249K.Your income should support the rest of the borrowing no problem, subject to you having clean credit rating etc.The team at PT Brokers on 0333 363 6507 would be happy to assist you in finding both a suitable BTL mortgage product and a new residential mortgage product, so give them a call. They will have far more competitive products than your bank, of that I can guarantee you, so you have a lot to gain by giving them a call.
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
Sounds fantastic, thank you Vanessa.
You have been very helpfull and you made us believe this is possible. Whether we will buy this house or not you and others put us on the right track, thank you for that.
I will give PT brokers a call for sure.
I am a little scared to be leveraged that heavy but the house we have found is very neglected and we can increase it's value very quickly. I would take interset only mortgage. This will cost us around £2200. Then we will refresh this new house so we can live in there. One year later we should have enough to fully refurbish and add loft conversion. We will then remortgage to repayment ( £3500/ month ) as soon as we can. That is the plan. We will see.
Not at all sure that IOM will be allowed via MMR on a new residential mortgage - as distinct entirely from a BTL mortgage.
Purchase price suggests new house is in SE where prices are stagnating/falling - especially in London but also in Home Counties.
I love that Can you explain to a newbe please?
I am guessing MMR stands for mortgage market review? What IOM means?
IOM = Interest Only Mortgage
At say a mortgage rate of 4% pa - IOM costs £4000 pa per 100k loan - but a typical 25 yr Repayment basis loan costs around £6300 pa - hence 57.5% more expensive to service
By my calcs - and allowing that Vanessa says you can release £226k deposit from first house (via BTL loan for £376k) you need a new loan of £275k plus buying costs. Latter would cost around £17325 pa to service at 4% over 25 yrs - hence with bills does need more than one income.
If BTL loan is at 4% you should net close to £1000 pcm net profit from BTL - subject nil voids/repairs and assume you let direct with no agency fees.
With say a 2 month void every 12 months - rent is 25k gross - minus 15k loan cost - minus 2 months full Council Tax of maybe £500.
Net rental profit before tax is then around £9500 - and £7600 after tax. Still a useful £633 net pcm - but does flag that voids and maybe interest rise could soon turn that in to neutral/net loss. Tenant referencing will be crucial.
In whose name(s) will the BTL income be??
So, after speaking with brokers we are doing that :
our house will become LTB - releasing 400k, IOM fix rate 1.52% , 4.3 APRC , £509.19 monthly payments , 26 years
new house ( 475k value ) - 250k repayment mortgage, 26 years , 2 years fix 1.49% , 3.8% APRC , £970.95 - monthly payments
This look good to me as we will be paying almost what we are paying now but have two houses and disposable income we can use on renovation as we wanted. If situation changes for worst we could sell one of those houses I guess.
What do you think? Am I missing something?
Vanessa, thatnk you for that contact. They are ( Johnattan) truly helpfull.
How long is fix on first home deal - the BTL?
As ever with a heavily leveraged situation you are hostage to future rate changes - which seem likely to be increases as rates on floor for past decade.
A 5/10 yr fix for both loans would be better as a hedge against rate changes - but will cost more.
Short term fixes have inherent downside that not only are there more churning fees on expiry of loan - but LTV can be adversely affected in a market downturn.
In your situation I would be happier with a retained cash nest egg of around £100,000 so as to cover voids/rent arrears/CT on voids/repairs/job loss etc.
On your new family home you are totally on your own if you cannot maintain mortgage payments - SMI is needs based and only now offers an interest bearing loan which then leeches equity.
You should consider both CI cover and/or Income Replacement insurance for both self and wife
Your employers may already provide Group PHI/Group Death in Service at 3 or 4 x annual wage - but if you are made redundant cover ceases immediately.
Above are just my thoughts and should not be construed as advice.
Of course the lower loan cost for the BTL - means that the rent residue is higher and a bigger chunk attracts the 20% income tax.
Rent income £30k less loan cost £6110 - leaves pre tax profit £23900 say and tax is £4778 - leaving £19120 net profit (less other costs)
it is also not new build. We are buying terraced house. The price reflects the house market in the area and the state of the property. It will be a good find if price won't go any higher and there will be not housing market cataclysm.
By new house I meant second house - not a newly built house
Thank you Vanessa
That is almost exactly what they come up with
I have explained the products they offered and it looks good to me. We are going to make an offer today.