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Just discovered PT and am really impressed by the wealth of information from such active members, it's been fascinating reading and I'm devouring as much info as possible at the moment.
Having read across several posts etc, I just had a lightbulb moment and wondered if I could gather some views about the wisdom/follies/pitfalls of the following plan please:
We currently own a leasehold 2 bed flat in London, which we bought 10 years ago for £230k with an interest-only mortgage of £180k. It's now valued around the £400k mark (outrageous, I know). We want to move to East Anglia and were planning to sell up, but what we can buy there isn't much better than what we have here (we are a young, expanding family). It has become apparent that we can't afford to buy/build our forever house just yet and are going to have to do it in a few moves. (Our ultimate goal is to build/buy a family home we can settle in for 25+ years and have that one be mortgage free.)
Latest idea is to move out of the flat (we can stay with family for a few months), spruce it up and rent it out. Our current mortgage provider allows you to rent out your property for 6 months before adding 1% to the interest rate (currently 2.5%).
Research I've done and from an agent indicates rental income for a property like ours is around £1300 per month. And we'd have it fully managed as we don't have time to do it ourselves.
Only when we have tenants in (so we don't have to cover bigger mortgage payments whilst looking for tenants), remortgage with a BTL of 60% LVR to release some equity as a deposit on a house purchase.
With that money + new residential mortgage of around £150-200k, buy a property with potential to add value - eg we have seen an unextended 2-bed house for OIRO £385k in a street where there are many loft conversions/rear extensions and where 3-bed properties have been selling around the £440k mark. Live in it for a few years and then sell, or repeat the remortgage and equity release process again.
Can i remortgage whilst tenants are in situ?
Would an interest only BTL mortgage be better than repayment?
Am thinking if possible, a fixed interest only mortgage for the next property would be best if we don't plan to stay in it for that long (either sell or remortgage and rent)?
Am I missing something really obvious?
Do these figure make sense or are they completely off? Am I letting excitement about the possibility of keeping the flat in London and buying our next home delude me about the sense in this plan?
Thanks for reading this far. Up until about 48 hours ago, we had no intention of becoming landlords and thought our only option to free up the deposit was to sell, but thank goodness I stumbled upon this website and started reading!
Credible plan and budget to support both mortgages.
See financial advisor and mortgage broker first .
Lots changed in 10 years. MMR rules and BTL stress testing.
E.g interest only resi all but disappeared. Need high salary circa 75-100k
im mortgage prisoner myself.
Did you overpay? Or having credible plan to sort existing mortgage in 15 years. ??
depending on lifestyle , budgets, and existing finances. Can be good or bad idea.
The next 10 years may not see same results
gains in equity are relative. . The thing you buy later is more expensive.
leapfrogging your way to mortgage free. Sounds nice.
Coming soon Investorsk8.com
Wisdom - an integration of knowledge, experience, and deep understanding that incorporates tolerance for the uncertainties of life as well as its ups and downs.
Are you good with money? If not you may compound problems.
why interest only 10 years ago?
Were you stretched then and still stretched today. Especially young family needs support and costs will increase over time. If you are good with money management and spreadsheet and budget are second nature. . Then go for it ! But if you are fag packet calculation and fly by the seat of pants style. Proceed with caution.
Do the numbers stack up? And you can outsource . Landlord responsibility is still present. And regulations.
The management is going to take 15%
the maintenance 20-25% depending on furnished or quality of fixtures.
Sp up to a third of that juicy profit you might have looked at gross is already accounted for.
Now add in taxation
gross vs net profit.
Salary , age and savings all next mentioned
just managing or abundance with surplus income??
You first stop is a good Mortgage Broker
Borrowing is not as easy as it was ?
Learn Change and Adapt ?????
All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.
Yes its all possible and sounds like a reasonable plan
The only thing which will hold you back..... is you
So ....Feel the Fear and Do it Anyway
Dont rush, get overwhelmed or over excited . That`s when mistakes are made
Just follow a staged methodical process to have two homes not one . Then grow again from there
Write down a mini business plan on how you will achieve it
Pick it apart mercilessly to ensure no holes
You have clearly done some good initial research so keep that up as you move forward
Your`s is a well trodden path so the precedence has been set by others
Follow in their tracks. Adapt as required . Learn as you go
Jonathan Clarke. http://www.buytoletmk.com
Hi Emiko,Welcome to the tribe, and thank you for your kind feedback.Your plan is actually a replica of what my husband and I did 14 years ago to get started in BTL and build our portfolio!The rent sounds rather low for a property valued at £400K and this could cause a problem if you re-mortgage to a buy to let product.I estimate that a rental income of £1300 per month will support a borrowing of roughly £196K, meaning you could only release £16K as your deposit.You really need to speak to a reputable mortgage broker to run the numbers and find out if there are any financial products that will facilitate this plan.To answer your questions:Can i remortgage whilst tenants are in situ?Yes, you can.
Would an interest only BTL mortgage be better than repayment?Interest only will be a much lower monthly payment facilitating cash flow to assist on the mortgage on your other home.
Am thinking if possible, a fixed interest only mortgage for the next property would be best if we don't plan to stay in it for that long (either sell or remortgage and rent)?Again this depends on what products are available.Am I missing something obvious?You will be subject to the 3% stamp duty surcharge.Do these figure make sense or are they completely off? Am I letting excitement about the possibility of keeping the flat in London and buying our next home delude me about the sense in this plan?I 100% concur that you should try and keep the flat in London and your plan is viable in theory. As I said, it's exactly what my husband and I did in 2004. We released £100K from my flat in London, rented it out, bought another residence, and used the rest of our money to build our portfolio.You can read about my property journey >>> here. The only spanner in the words that I can forsee if that you may not be able to release enough equity for the deposit on your next residence.I would strongly recommend that a conversation with a mortgage broker who deals with both residential and buy to let is your next action. Without the finance, it is all a moot point I am afraid.Good luck and let us know how you get on.
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**
If you keep your existing property your new purchase will be subject to the additional 3% stamp duty, have you factored this in?
Check your lease to ensure you are able to let the flat and what the freeholders charges will be for this.
Have you factored in the service charges for your flat?
Have you read up on S24 and factored this into your costings?
How long remains on your lease and will you need to extend if you keep the flat?
Have you considered how you will manage redecoration of the flat between tenancies.
Have you considered selling the flat and purchasing a larger main residence which could possibly incorporate an annex which could be let - e.g. self contained room with ensuite over a garage which could be let on Airbnb or a self contained flat.
The world has changed a lot since Vennesa started 14 years ago
as I said a Good Broker is the place to start but I think you will struggle to raise the cash on the Flat you own
You also really need Good Taxation advice
S24 will effect you if you highly leverage in your own name
Stamp Duty will also need to be paid
Create a good team around you Accountant and Mortgage Broker first
and see what you can Remortgage and what cash you have to play with
Your Plan is a sound one but I can see the Remortgage causing problems
You have to look at how you hold property today
Ltd Co or Personal
This is where you need to take good advice FIRST
RICS also say the London Market Prices are dropping so you may find a surveyor will down value your Flat
I think you have an up hill struggle on this
shame you did not do it in the easy days of BTL it would have worked much easier than in 2018
I don't mean to sound negative, just a couple of things to consider:
Maybe I have missed it in the thread above but S.24 tax changes also a massive one to consider. Basically for property held in your personal name you will not be able to off set the mortgage interest payment against your tax, so the tax you pay is linked to the money you earn from your job + your property rental profits.
And also the demand for rental of your property, we buy homes as we want to live there, not necessarily because there is massive rental demand. I was considering buying another property a few months ago in London and the areas I was looking at had property on the market for months before being let so decided against it.
That's a really low increase on your London flat for 10 years. Have you checked on Zoopla for their estimate of value, and have you checked similar properties?
I did it this way, it's a great plan, but as others have said changes in mortgage lending criteria and taxation have made it tougher to make the numbers work, but you shouldn't give up until you find a way to make it work e.g. sell your London flat and buy a cheaper one nearer to your new home - could self manage after a while - it's not that difficult, and if it does get difficult, not much advantage using an agent! Also, the PRA tests will work better on a cheaper property with better yields; buy a cheaper new home using less equity still with a view to adding value - suffer a little with less space at the start of your journey to get you going.
The one problem I have now is although I've created lots of equity, I can no longer get hold of it thanks to new PRA, and my income being a factor as well as rental stress tests - bit tricky in the SE to expand, but I'm unbelievably glad I did it.
Don't let the negativity quash your ambition though, just use it to develop your strategy soundly, and keep on exploring how you can do it because you can, somehow, and keep reading PT.
Are you OK on excel? Get some spreadsheets going, and play on
as well as researching house prices and rentals on Zoopla and Rightmove:
"Change is a prerequisite to longterm survival".
The establishment is rigged so that the rich stay very rich, and the poor get poorer.
Looking back on the Blogs
I fully realise how easy it was to be a Landlord in 2000 and the opportunity to build a business
Its a different world today and its changed so fast
YOU WOULD THINK THE GOVT DID NOT WANT US TO INVEST IN PROPERTY IN 2018