UK Landlord Forum / Life

Hi,

I am new to the forum and seeking some advice, hope someone can help me with this.

A friend of mine is selling his student house for 350k which I would like to purchase, rentable income 40k per annum.

Asking price will be 350 to 400k...

It will be my first buy to let property so I am unsure how much deposit I would need to purchase this property.

My situation:
40k in the bank
60k capital in my house.

What would be the most efficient way to purchase this property and will I be able to borrow the rest?

Any help or advice would be most appreciated.

Regards
Drew

Your best bet is to consult a proper independent mortgage broker, especially if you're looking at releasing equity from your home. A deposit in the region of 10% is going to limit your choice of lenders and leave you looking at the spicier end of the menu when it comes to interest rates.  Bear in mind also that, from next year, a big lump of that £40k per year will be going to the tax man before you get as far as deducting the interest. so the return starts to look less favourable, especially for a student let.

Hi Tesla,

Please bear in mind I am not a mortgage expert by any means, but as a landlord I have recently been looking for a remortgage for my rented property....

I thought that my ability to borrow would be mostly dependent on my current income, current outgoings and also my other borrowings/loans.

What I did not realise was that lenders seem to also look at the likely rent to be generated from the property and they apply a mortgage borrowing stress test.  This involves making sure that the yearly rental income covers 125% of the interest that would be payable on the borrowed amount if the interest rate was at an inflated figure of approx. 6%.  They will only allow you to take out a mortgage loan amount where if you took 6% of that loan amount and multiplied it by 1.25, the figure you end up must be less than the forecast annual rent to be paid by your tenants.  This is even if the mortgage interest rate of the mortgage product you are interested in is only around 2% to 3%, say!!!

Now, there might be lenders out there that might not apply those stress tests at the moment.....not sure if that is the case, or not ......., but I think the body that makes the financial rules (FCA?)  have either already stipulated that the stress test must already be applied when lending, to check on ability of borrowers to make the repayments if interest rates were to go up significantly, or it is certainly coming into force in the near future!!

Best to speak to a mortgage broker to find out where you stand and get more accurate information than I can give  as I say I am no expert so may have some facts wrong.  I am only telling you what I recently found out.  There are fee-free mortgage brokers out there, and if you contacted any of these, you wouldn't need to pay for their advice. I assume they receive a payment from the lender if you take out a mortgage they recommend.....the Martin Lewis website (moneysavingexpert.com) provides details of brokers that might be useful to you...

Hope this helps

Mike

Hi,

Thank you for replying and all info well noted. I will seek professional advice before doing anything else.

Regards
Drew

Hi Tesla,

The £40k rent you mention would allow you pass the stress test I mentioned if you borrowed approx.. £533k

However, I thought most lenders for BTL's were asking for min. 25% deposit, so £100k deposit for a £400k property, borrowing £300k.

Your £40k cash and £60k equity in your own residential property might allow you to generate the deposit for the rental property by remortgaging your residential property at the same time.....

Mike