UK Landlord Forum / Life

Hi everyone this is my first post so I hope you take it easy on me ,

Before I start just like to thank everyone as I've truly learned a lot from reading around forum and learnt a lot of things which cant be found in books.

Anyway so I've got my eye on a flat which is pretty local to me coming up for sale in a future auction, I know the area well and know exactly what kind of yield it would produce for me if I were to rent it out. If it goes for the amount which I'm predicting which it should make a decent buy.

Heres were Im getting a bit confused, obviously I would need to put up 10% of the property price to secure it but I'm not too sure about the best way going forward from there really is in terms of finance .. do I A) Speak to a lender now and try and get a DIP for a mortgage of my own (which is pretty daunting as I am under 25) or do I ask a family member or somebody with a lot more experience to join me on the application as the chances of getting the finance would be much higher.

Also, obviously I also understand the fact that I would require something more than a residential mortgage, does this mean i would then have to put up a further minimum of 25% after the purchase of the property from auction?

I would love to hear your thoughts, advise and suggestions and sorry If im not coming across clear enough 

You're thinking of buying a flat to let out... that's what I read.

For that you will need a BTL mortgage - you can't get a residential mortgage on a property with the intention of letting it out as that would be mortgage fraud and you could get blacklisted across all Lenders, something you don't want to risk at this stage of your life.

For a BTL mortgage you would expect to pay a slightly higher interest rate and you would - generally - need a better LTV. I always go for 60% as that's where the best deals are. Most BTL Lenders want you to be earning at least £25,000 per year as part of their criteria.

A selection...

http://www.moneysupermarket.com/mortgages/buy-to-let/

Manage all that and you're golden.

I would not go into this with family or friends. Good idea about any property you intend to let out being local to you - I applaud that.

If you're buying at auction - this is my understanding - you will need your finances all set up and ready to go before you press the button.

Last thing I'll say, that I say to everyone, is don't get focused on the yield figures... net yield, gross yield... who cares? A yield figure is based on a model... full of assumptions... what matters is real life and how it works out for you, how much rent you actually get in, how much money you need to spend on it, how much of that is classed as allowable expenses and how much profit (hopefully) you make at the end of each year for HMRC to take a sniff at... that's what really matters.

Thanks for the reply Hippogriff, I know good advise when I hear it and I definitely appreciate it. I did anticipate that the Loan to Value would be a lot higher if I were to go directly for a Buy-to-let mortgage however the thought of a 40% deposit for the property in question isn't something which i could undergo without tying a lot of cash which i currently to fund other commitments.

I think in order for me to comfortably take that kind of financial commitment on I would probably have to get stuck in on a few cosmetic development projects to raise enough capital in order to take that leap without too much risk involved. I say this under the notion that I would be able to purchase these projects at a much lower LTV and use the remaining percentage to undergo the work needed to restore the property and take it to market, however I do realise the time and effort needed to complete such a task.

Also would I was actually thinking to purchase the property under the a residential mortgage and actually occupy one of the rooms and rent the other 2... what would be the process required to then convert that back to a full BTL mortgage, i know there is a fee attached and would probably have to pay a higher rate but I would love to gain more insight into this...

Let me know what you think 

Quote from: teddyboy on March 29, 2015, 10:22:37 AMAlso would I was actually thinking to purchase the property under the a residential mortgage and actually occupy one of the rooms and rent the other 2... what would be the process required to then convert that back to a full BTL mortgage...

This is the kind of stuff that worries me a little bit. I know that lots of Lenders frown upon this and they have clauses in their Ts&Cs that will explicitly prohibit it. Their concern is that these people (who are not mortgagees) will have some rights to the property if you, as the person paying the mortgage, default and they have to repossess. If they are Tenants with an AST then they would certainly have rights and the Bank couldn't just turf them out. Lodgers might be different. I think Lenders will try to cover themselves for any other people residing in the property who aren't, effectively, your dependants.

I would advise be open and honest about your intentions and consider the use of a Broker.

You might balk at the fact you have to pay someone something when all you are doing is getting a mortgage, but these guys can find you something that they know will work for you... and they'll know how the different Lenders look upon scenarios like your plan.

Moving from Residential to BTL shouldn't be that hard... the Lender gets their benefits from the higher rates they'd charge you... but you'll need to be careful when you start to think about this... even moving from a different product with the same Lender could attract Early Repayment Charges, and you want to avoid those if at all possible. BTL products usually come with hefty fees attached, often circa 2% or an amount like £1,999. If you have a Residential mortgage and just want to get Consent to Let after a period of time, that will attract a fee, but it will depend on which Lender as to whether they even allow it, force you to BTL product they offer or simply charge you an admin. fee.

I know YBS (who do not offer any BTL products direct) will charge an £85 consent-to-let fee. I know HSBC (who do offer BTL products) will allow you to let a property out for a year without forcing you to a BTL product, but then they will, so it's like a grace period. I have no personal experience of other Lenders.