Buying an £800,000 property as a buy to let?

[bibbitybobbityyhat]

Asking for a well off relative.

Given that the limit on the rental income for such a property would be about £2000 pcm - is it doable? The wealthy friend can put down about £300,000 cash deposit and only wants to do this for 2 or 3 years, so interest only mortgage. They don't want to make any money out of it, just to own the house and move in later.

[CanandWill]

I would wait for 2 - 3 years and then buy. I think house prices are set to fall.

[bibbitybobbityyhat]

This is for a pretty unique house! It's not a question of trying to beat the market. This person wants to buy the house but can't live in it just now.

[AnyTheWiser]

You cannot claim the mortgage interest from tax any longer, so interest only mortgage not really worth it. (though of course, if that's the only way they can afford this...)
Would be far better buying £300,000 property outright. Or even 3x £100,000 properties.

What about a 2-bed property in cenrtal-ish Cambridge- about £300,000, will always retain its value, as the university own so much of the city. No way prices will fall there.

[AnyTheWiser]

Ah- x-post. I see.
So buying now to move to later.
What if it is trashed by occupants?

[AnyTheWiser]

How much later do they want to move there? What type of area is it in (if you can say)?
If we're talking Barbican, yes- go for it.

[bibbitybobbityyhat]

Yes, well what if any btl is trashed by the occupants?

It is an unusual house but not unusually expensive to buy for the area it is in iyswim. Infact it is probably a little cheaper (think London Victorian terraces v unusual modern house).

[EssentialHummus]

The yield on that is shite, but if the (viable) long term aim is to move in, it could be fine. Will they be able to afford to switch to a resi mortgage?

[ChicRock]

Doable in what way?

Can you even get an interest only mortgage for BTL?

Can they afford to subsidise the mortgage payments, because I'm not sure 2k a month would cover the mortgage?

Can they afford to cover void periods where they don't have tenants?

Is there a market in that particular area that has plenty of renters willing to pay 2k a month?

Not enough info in your OP.

[AnyTheWiser]

Yes bibbety, but it's different if you're going to live there yourself I think, more emotional investment.

[twirlypoo]

Hmmm, this reeks of not going to work!

Is the goal to own the house, so the BTL part is more to tide them over till that happens?

Have they been a landlord before and know what they are getting in to?

I am not sure they would actually get a BTL mortgage based on the rental income actually - have they looked into that?

Sorry for all the questions - I know the feeling of wanting a house and trying to make it work, but there is a lot of info missing and the info there doesn't sound like this is the best move.

[ShortLass]

There's been some mis-information on this forum about the tax changes for landlords. To say landlords can no longer claim tax relief onmortage interest is untrue.

The changes only come into effect in April 2017. Then it is capping the tax relief on mortgage interest to the basic rate of tax (20%). This effects people who are higher rate tax payers (who currently get 40 or 45% tax relief and from next year will get 20%) but people who are basic rate tax payers experience no change.

There are a few changes being made, but they are being phased in starting in April 2017 and concluding in April 2020. (My ipad won't let me post links at the mo., will try later).

Back to OP: I understand this person wanting to buy the house to move into later. It will give them piece of mind that the house they want is in their ownership. The main thing to watch out for is stamp duty if this is a second home (pretty hefty). If they are renting and this will be the only property they own, they may get away with ordinary stamp duty, but they'll need to check. Also be aware that tenants living in house could mean various things will likely need attending to in order to bring it up to spec before owner moves in (eg, decorating).

[ShortLass]

A couple of articles on new tax rules for landlords:

MoneySavingExpert

International Business Times

Managed to do the link thing eventually. There are many articles on this ontheweb.

[Sunnyshores]

As previous people have said do-able depends on many things. First off they would be looking for a £500,000 mortgage and with a rent of £2000pcm they wouldnt get one as the rent only just covers the mortgage (prob about £1600) let alone voids, insurance, repairs etc etc.

Even if they could persuade a lender, unless they could fund it entirely themselves its reallly not worth the financial risk. And lets not forget the hassle and legal nightmare being a landlord entails.

[Needmoresleep]

Buy a well located 3 bed ex council flat in some like Bloomsbury. Rent to four (using the living room) students. Probably £190pw each. 12 month lease. Students at top Universities work very hard and tend not to party and have lower expectations than prof tenants. Yields are higher, demand is strong and you are closer to covering your costs. Rent is normally payable 6 months in advance as overseas students don't have guarantors.

[bibbitybobbityyhat]

Sorry for short delay.

The relative wants this particular house but can't sell their main residence for a year or two. At the present time, their main residence is worth about £200,000 more than the dream house, with a mortgage of £170,000 outstanding.

So when they sell - if prices remain static - they will be downsizing. As I said before, they don't want to make a profit, they just want to find a way of buying this house (rarely on the market) right now.

[Sunnyshores]

I would phone a large broker like London and County L&C (free) and just ask if in theory they could get a BTL mortgage of £500,000 with that rent. I dont think they can.

The other option is to take more equity out of their current home. Id suggest they would need another £100k = £400k deposit, £400k mortgage - L&C can confirm these figures.

BUT they will need to be able to afford the monthly repayments for maybe 3 months initially and allow for 2 months every 12 months after that if/when a tenant leaves.

PLUS the buying fees (ask any solicitor for a quote), plus costs to get it ready to rent, gas safety, any repairs, agents fees, insurance etc etc.

I really think it is a huge risk. Mortgage rates will increase in the next few years, prices may well fall as a result. This could result in them losing not only the dream house, but the house they have worked hard to already own. Other peoples stories make buying, selling, renting property sound easy. Its not. Its gambling in effect.

[EssentialHummus]

Rent to four (using the living room) students. Probably £190pw each.

This takes you into HMO territory, and licencing in some parts of the country. Be careful!

[AnyTheWiser]

The other thing to be aware of.
If he has a residential mortgage currently, they will need to refer to their underwriters, and likely he will be expected to have more than a 25% holding in his current property.
Particularly important if he's raising the deposit from his current mortgage!

[AnyTheWiser]

Another thing g to consider is that a very unusual property may be more difficult to let out, and he may have to put up with longer void periods.

[YelloDraw]

I wouldn't - there will be other houses available in 2 years when they are in a position to sell their current house. The extra 3% stamp duty and costs of conforming to HMO standards aren't negligible.

[Squeegle]

Why is the potential rental value so low? I would have expected at least 2500?

[Charleymouse]

How about renting current house out and getting consent to lease on it and buying new house as residential property.
Could release some capital from it first to aid purchase of new property then not hit as hard with tax when come to sell as it was a home they lived in.

[cestlavielife]

why cant they sell? cant or dont want to?
eg taking a hit on tied in mortgage? or?
if they really want that house they may have to take a hit

if they need to stay in area of current house eg for school etc they should sell up, buy new one with no/little mortgage; rent it out easily covering costs and rent small place for them in current area.

[Needmoresleep]

Hummus, less than five and on ground or first floor should be OK, but I agree that different authorities interpret things differently. Oddly more affluent London boroughs are often the most relaxed. They don't really have a slum landlord problem but do have a real shortage of affordable rental accommodation. It's the poorer boroughs who seem to do their best to scare off decent landlords by imposing a welter of HMO restrictions.

[bibbitybobbityyhat]

It's definitely not a student house! The ground floor is more or less open plan.

Selling the existing house is out of the question, not least because the desirable house is on the market right now and the current house needs a great deal of cleaning, tidying and smartening up!

Anyway, thanks for all advice and answers. He is looking into it