Renting out own home

[Fedupofallthemud]

We have been trying unsuccessfully to sell our house in order to move to a bigger house. We are in Aberdeen area and property market is very flat due to low oil prices, redundancies etc

We are now wondering instead about renting out our house for a year or 2 (or possibly longer if required)
We have in excess of 25% equity in our house and rental yield estimates are more than 125% of predicted mortgage costs. Is it likely that we could set up a buy to let mortgage with a lender on that basis? We have a loan we would like to pay off so its not just a case of speaking to our existing mortgage lender to change to BTL which is why ideally we'd shop around for best possible rate

So my questions are whether this sounds feasible, and if you can apply for a new BTL mortgage on a property you already own (rather than one that you are buying iyswim)

I know there are lots of other issues and costs to consider but trying to work out if this is an option for us

Thanks for any opinions offered!

[MadamG]

We just did this, with similar basic figures to do. We underestimated the set up costs (decorating, gas safety work) and the house has been empty for three months and we can't find tennants either. We are now on with two different agents. It's scary as we are paying two mortgages with no end in sight.

[HelenF350]

I am surprised you are struggling to sell in Aberdeen, everyone I know has managed to sell very quickly recently. I didn't sell my house when I moved in with DP, I didn't change my mortgage provider either. My equity was only about 20% so I would have struggled with a buy to let mortgage. Nationwide allowed me to rent mine out at the same mortgage rate for 6 months and for an additional 0.5% after that. You shouldn't have an issue getting a buy to let mortgage with 25% equity with a yield like that but it may be cheaper to get permission to let on your existing mortgage if you are still in a fixed period. You should easily be able to rent it out too as the demand in Aberdeen is very high for rental property. Although this will vary a bit depending on size and area.

[Fedupofallthemud]

Madam that would be the worry but there is high demand for rental in this area, and mortgage on BTL would at least be interest only so we could cope with some void periods

Helen that's interesting, we are just outside the city (within about 10 miles) in a popular town and market here is very slow at the higher end of market. (don't want to completely out myself by saying where!)
When nationwide allowed you to rent yours did your mortgage change to interest only or continue as repayment? We have no tie in with our existing lender (Santander) but will probably speak to them first to see what they could offer.
Did people you know who have sold their houses recently sell at above valuation? The only 500K plus houses to sell here recently have been way below valuation hence our reluctance to sell if we don't get a decent offer.

[HelenF350]

I'm a little surprised at that. Houses here are going above valuation and within 8 weeks of going on (we are about 14 miles out of town, but it is a reasonably priced village in comparison to a lot). I have a fair idea where you might be. I have a keen interest in property and a building surveying degree. If you are where I think you are you shouldn't struggle to let.

My mortgage is still a repayment, exactly the same terms but the interest rate increased slightly after the first 6 months of letting. I was letting bedrooms mon-fri so my tenants just took it on as a full lease. I know how many applicants I had for those rooms though, it was crazy! If you need any more specific help feel free to PM me. You don't need to do too much for letting but there will likely be additional smoke and heat alarms required, a gas safety cert and an electrical cert (which is a new requirement). You also need to register as a landlord with the council and get landlord insurance but it is fairly straightforward.

[Fedupofallthemud]

hmm we would maybe struggle to get 125% of mortgage covered if we were still on repayment mortgage (would be more like 101%!), basing this on our home report estimation of rental income (obviously we'd need to get some agents in to see what they would suggest)
However if we changed to a specifc BTL mortgage on interest only this would not be an issue, so that is maybe the route we would have to take.

Then all we would have to do is get mortgage for new house! We will have about 200K equity in that as we already own the plot and will be doing self build (its a bit complicated and I won't go into that)

I'll PM you where I live
Thanks for the information, very helpful

[HelenF350]

Interest only mortgages are a little more tricky nowadays. Lenders are a bit less keen to lend but you have decent equity so you should manage to get something. May take a bit of shopping around. I would suggest an independent financial advisor would be the best place to start. They have a good knowledge of who will lend under what circumstances.

[SheriffCallie]

We did this last summer. Went through a broker so it was reasonably straightforward, if a bit slow moving. We had 25% equity so were able to get a let-to-buy mortgage, interest only.
We got tenants with no problem and we are v lucky in that they a) are lovely, b) love the house and c) are saving for a deposit and want first refusal if we sell in a couple of years. Which is a timeline that suits us.
So yes, it's something that is working for us so I'd not dissuade you but I suppose only you know whether you could manage the stresses of void months, repairs, tax returns, etc.

[wowfudge]

We let our house out when we couldn't sell - market at the time meant the typical buyers for the type of house couldn't get mortgages. Remember you need insurances in place and will probably need an agent to let the place out and you might want them to manage it - especially if you are managing a build. All these things cost money. Houses sell at the price the market believes they are worth. A valuation is not an accurate measure - sold prices are.

As things were, we eventually sold after five years when the tenant had given notice. We sold for about 5% more than the asking price when we originally tried to sell. With the costs during the period when it was let we just about broke even, taking into account selling costs. We paid the agents to manage for about a year until they nearly lost us the tenants through failing to deal with some maintenance issues. We then took over ourselves, but I was never very comfortable with that.

[specialsubject]

do take some time to read the manifestos. Obviously the promises are flexible, and as you are in Scotland rules may be different, but there are things such as minimum 3 year tenancies, forced energy efficiency improvements (which, say the LibDems, won't affect rents because of the Green Deal...) registration of landlords and removal of the tax break on BTL mortgages.

these are all fine with me in my circumstances as a landlord, but make sure it works for you. If it doesn't, drop the price and sell.

[lotsofcheese]

I'm in Scotland (Edinburgh) & would advise you to speak to some rental agencies (as well as a financial advisor) to get an idea of start-up costs.

In Scotland, tenants cannot be charged for costs associated with renting eg references, credit checks etc. So the landlord bears the cost. It means using an agency can be a costly business - around 1k when I looked into it about 6 months ago. This was for "tenant-finding", referencing, photos, marketing, accompanied viewings etc. And the standard 10% of rent "management fee". The landlord is also responsible for Factoring costs, gas/electricity checks. Energy performance certificates & registering with the local council are also compulsory & cost money.

You'll also need to pay tax on profits & change insurance to landlord insurance (with public indemnity insurance, malicious damage etc). And provide a tenant information pack (a legal requirement, downloadable).

Unsurprisingly, I don't make a lot of money from renting out my property, even though I have a very small mortgage (

[specialsubject]

interesting - here in England I also pay 10% for tenant find and rent collection, and a sort of 'helpline'. That included photos, marketing and viewings.

the tenant paid a reference fee of about £100, I paid for inventory and check-in. We both pay about £100 for each tenancy. Yes, money for old rope but it clearly could be worse.

insurance, gas etc are of course all my costs, and overall about 25% of the rent goes straight out on these fees.

but of course you (and I) as the landlord are the rip-off merchant, not the agent. And you are the regulated one, not the agent. And you are recipient of all the bile from the government, not the agent.

[Fedupofallthemud]

Thanks for all the opinions.
We won't be dropping the price. This is a very specific problem relating to oil redundancies, up until October last year houses were selling fast and well (neighbours sold at 18% above valuation)
I have no doubt due to the cyclical nature of oil prices that they will come up again (already up 30% on its lowest point back in January)
So if we can sit it out for a few years till confidence returns then market will pick up again.
We don't need to make profit from renting and because house is well maintained and quite newly coverted I don't anticipate too much financial loss that way.
We can budget say 3k per year to cover unexpected problems/ void period etc. And I have option of picking up extra shifts for additional money of we need it.
We already have an up to date EPC and photos, we have lots of smoke/ heat detectors already so hopefully wouldn't need more.
We would also manage ourself as we are not moving far and dh is pretty handy at fixing stuff, plus has contacts for electrics etc.
There is a lot to think about but it's seeming like a good option at the moment.
It also means if we don't find our new house to be what we hope it to be we can always come back in the future (highly unlikely though!!)

I suppose there is a bit of sentimentality here too as we truly love this house. I know not a good thing to base decisions on though

[lotsofcheese]

Special, that's why I manage my own property, rather than using agents. There has been a lot of legislation in Scotland in the last 10 years when I've been managing my property - things like including LL registration & EPC on advert for rental, or you risk being fined. It can be hard to keep up with & most use agencies nowadays.

But OP might want to consider a "halfway house" if she's new to this -ie an agent finding tenants but her partner doing the managing - some agents allow this.

OP, your council will have a website about responsibilities as a landlord. Or a quick Google of Scottish landlord requirements will keep you right!

[Fedupofallthemud]

Thanks lotsofcheese
I'll have a look. I'm always keen to do as much research as possible before making decisions so it's useful to hear other people's experiences.
If we get a decent offer we'll still sell but we need to know if this is at least a viable option.

There are also some local issues which make me believe our house will increase in value but I don't want to out myself by saying exactly what ( not meaning to be obtuse btw )

[specialsubject]

if you love the house, that is the first thing to shed before you rent it out. you must detach because someone else is going to be living there. Worst case is it will get wrecked.

[Sunnyshores]

OP - lot of the 'problems' seem to have been eliminated such as distance, ability to do maintenance, £3k pa to put into house sounds generous esp as its a newer build. You do have to be prepared for varying amounts of stress from tenants (and agents!) and being a Landlord isnt an easy way to make money. However I think it unlikley that you'll get an interest only BTL so sorting a mortgage in principle should be the priority here.

[Charleymouse]

Most BTL mortgages I have seen tend to be interest only. They vary between based on rental income alone to combo of income and rental income.
If you already have a mortgage in place could you get a consent to let for a period of time although not sure how this would help with your loan issue.