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  • Buy-to-Let

    Residential or BTL as a first time buyer?

    Hi all,

    I am not currently a home owner but I plan to be in the near future, and would like to hear some different views from experienced people on wether it would be better hypothetically, to start with a Residential mortgage or wait, save a little more and go for a BTL (BTL is my end goal).

    I would be looking to buy a property at no more than £70,000. For a BTL mortgage as a first time buyer, I would need a deposit of what appears to be the normal figure of 25% or £17,500.

    If I were to purchase the same property as a Residential Mortgage I could go as low as 10% or £7,000. (I understand the differences in the mortgage repayments so that's not an issue).

    Due to the difference in deposit amounts I could become a home owner a full 1 year before if I chose the Resi route. This would give me a year with which to add value as and when the finances became available (the saving of the additional £10,000) so that when I wanted to change to BTL there would potentially be more equity available and I have the experience of owning a home, paying a mortgage etc.

    In your opinion, would it be better to wait, save the additional £10,000 and start as a BTL, or, buy the house as a Residential and apply to change the mortgage after a year having carried out basic renovations bathroom/ kitchen/ decorating so that it is ready to be advertised?

    Thanks in advance for any responses.

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    This one is a no-brainer for me.

    Go for your residence FIRST.

    Two reasons:

    1.  Gets you on the property ladder.  Buy somewhere slightly bigger than you need and rent out a couple of rooms to lodgers to generate an additional income stream and benefit from £7,500 Rent A Room tax allowance.  You can also start learning tenant selection and tenant management skills.

    2.  If you purchase a residence that you can develop/add value to, you can then, later down the line, change it over to a BTL mortgage, release equity, and use those funds to buy another residence.  See >>>  Using residence as stepping stone to BTL

    2.  Having a residential mortgage address means that lenders will regard you more favourably and you will be able to access better BTL mortgage products.

    Hope that helps bring clarity for you?

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    Not being a current residential home owner leaves you in a great position, buying with a 10% deposit, you’ll be able to move on a purchase sooner and also free up some cash to renovate/add value. Do make sure you run the maths whereby you are sure to add value to see that extra 15% needed to switch to the BTL (25%) later down the line.

    Often a high street residential MTG provider will switch you onto a ‘consent to let’ too if you don’t see that 15% rise straight away. Sometimes fee free. Some won’t consider it though, so do your research.

    Don’t plan to make this residential-BTL switch an ongoing part of your business though, you don’t want to end up on ‘The List’…. Wherever that list may be.

    A ‘friend’ of mine did this for his first two BTLs, it worked fine for him. Taking on-board Vanessa’s advice with the Rent a Room allowance is a little icing on the cake.

    Buying with 10% deposit and 1 year sooner…. You’ll be able to achieve a lot in 12 months.

    I wish you luck on your journey.

    A.

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    For residential mortgage you will have to pass the lenders affordability test.

    If you purchase the BTL as a FTB , then you most likely have to pass the same affordability test as if it were residential plus the BTL rental stress test.

    This is to satisfy the lender that you could afford to purchase as a residential and not looking to obtain the property to live in via a BTL mortgage (also known as a back-door-resi).

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    You can contact me via Direct Message, or 07788 219647 or call the team on 01206 654444 for personalised quote and advice


    Thank you for the comments it's greatly appreciated. I wasn't expecting such a quick response. After reading them it has confirmed what I felt in my mind surely would have been the better option, and also given me something else to consider as regards letting one of the rooms. I hadn't even thought of doing that, let alone realise that there is a tax allowance add on as well.

    It makes very clear sense now I see it in black and white to start on the residential route because as suggested I could achieve so much potentially in that 12 months. Renting a room and gaining the experience of tenant selection and management would be extremely valuable, not to mention the experience of developing/ adding value to a property which helps as my portfolio grows and my knowledge enables me to diversify in the future.

    You have made my mind up and helped me now have a clearer picture of what I should look to do to begin my journey, so once again thank you.

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    Please do let us know how you get on.  Many people start out this way and its great that you have a clear vision and way forwards.  The Rent A Room allowance is certainly very attractive too.

    Perhaps buy a property with two ensuite bathrooms, as that will enable you to rent out the room at a premium and also give the lodger and yourselves some privacy. 

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    Hi Indigoblack,

    Congratulations on taking your first steps into the property world. I think from reading your post you may have answered your own question. You seem very keen and leaning towards the residential side first. Both are good options and is entirety down to yourself and what you would like to do. I think you sound like you have got good knowledge and a good understanding of both. I think it just comes down to which route is best/beneficial for you personally. Wish you the best of luck and look forward to seeing an update from you.

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    If and when you opt for buy to let - Owning a home first will open up the number of avilable lender options.

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