Funding a buy-to-let

[fassbender]

Hoping for some advice from someone a bit more money savvy/knowledgeable than me please :)

My parents currently own a studio flat that is attached to our house. Their plan was to rent it out but they have recently purchased a house for themselves and they have said that they would like to sell the flat so that their new house can be mortgage free.

I love the idea of buying the flat - but would have to rent it out in order to cover the extra mortgage. My question is, are you allowed to borrow extra funds on top of your current mortgage in order to pay for a deposit for a buy to let? Looking at our mortgage website, we would be able to borrow the funds as we have enough equity in our house to do that, I just don't know if they are allowed to lend you that money for the purpose of a buy to let deposit. We are currently in the middle of a fixed period with our mortgage.

Thank you for any advice.

[purplemurple1]

You can remortgage and up to the level you cna be approved for based on the value of your home, income, outgoings etc the rules are quite strict now so it might be less than you expect.
Not sure how it works now but they didn't use to care why you needed more money but you have to show how you will repay it with you 'real' income as the btl mortgage is aginst any predicted income.

[fassbender]

Thanks purple. So buy borrowing more on top of my current mortgage, would I have to remortgage (and therefore pay the early repayment charge which could add loads on top of that?) The amount we are hoping to borrow (add to our current mortgage) is £11,000.

[fassbender]

by borrowing more, not buy

[purplemurple1]

I think this depends on the lender mine let me swap to a btl (i didn't borrow extra) by just paying an admin charge you've nothing to loose by asking them.

Would another option be your parents keep the flat but you rent it out and pay their mortgage, more risky of course for them.

[fassbender]

I would love them to do that but unfortunately they have made it clear they want to sell, either to us or to someone else. When they originally bought it, the plan was that we were hopefully going to buy from them at some point in the future (like 10 years down the line), we just aren't in a position now to do so without it being a buy to let.

Thanks for your advice, I think a trip to the bank is in order!

[purplemurple1]

I tend to find I get more favorable responses on the phone, but it may just be that I sound more grown up than I look.

[fassbender]

[Needmoresleep]

1. For tax reasons, you are better off borrowing the money against the BTL property.
   

1. You would then need a reasonably substantial deposit. You could borrow this money against your own property, or could you ask your parents to lend you the money. (Given they will have the proceeds of the sale.) Generally lenders want BTL mortages to be stand alone, eg likely rent to be higher than costs.
   

1. BTL mortgages come in all shapes and sizes. Some like first time landlords, others dont. Some are only available through brokers, eg Nationwide/Mortgage Works. Its therefore much simpler to use a broker. I was perfectly happy with London and Country who don't charge fees and can give you a pretty quick indication of whether it is viable. In your case and assuming you don't have much in the way of funds outside your equity, I would look at something like an interest only mortgage, with as few up-front fees as possible. If your parents can lend you the deposit for a few years I would fix this mortgage to co-incide with repayment requirements.

[fassbender]

Thank you Needmoresleep, I appreciate the advice. Unfortunately my parents are unable to lend us the money as they are selling the flat in order to pay off the mortgage of their house. But I will take your advice about talking to someone to see what the options are :)

[tricot39]

You will need at least 25%deposit to get a BTL interest only mortgage on the flat. The annual rent will need to be around 1.25-1.3 times the annual interest on the mortgage at a stress rate of 4.99-5.99% depending on the provider. The lender will also have to be happy with your income/age Etc. Have a listen to podcasts on the Property Hub and post on the Property Tribe forum for landlord input. Financial advice on MN can be a bit patchy in my experience. From what I can tell studio flats are not ideal for BTL so maybe consider a different place more likely to have a long term tenant.good luck