Buy to let the first time(34 Posts)
DH and I are about to move to a different area. We are not planning to sell our current home as the property market isn't so good ATM. We are planning to convert the current residential mortgage to BTL, then applying for a residential mortgage to buy a new property.
Neither of us had any experiences with BTL. Shall we go for interest only or repayment? Shall I go for the agency (8% management fees) or manage ourselves? Some agencies offered the guaranteed rent scheme, is this a good idea? If we decide to manage ourselves, how do we start and how to avoid the loss?
Interest only or repayment... do you want jam today or jam tomorrow? I have interest only but I'm counting on capital appreciation. I would of course go repayment if I could afford to. We us an expensive agency to find us tenAnts but we'd rather take the hit in the fees than have the flat empty and lose rent .plus we can't be around to show prospective tenants round. We manage it ourselves always have but if you are hundreds of miles away that can be a logistical nightmare unless you have a reliable local diy man
I'd see an IFA before making a decision; nowadays, due to the recent changes in taxation, I don't think there's much profit in BTL (unless you have a tiny mortgage & high rental income).
The amount of interest you can offset against tax is being phased out in the next few years (you used to be able to offset this against tax), so best with repayment mortgage - but this will be at a higher interest rate than a residential mortgage. Your mortgage must also be covered by the rental income x 125%.
Also consider about 10% of your rent as agency fees - I would not consider self-managing as a 1st time LL - have a look at the Landlordzone forum to see the issues - unless you have experience in the area.
And of course you will need LL insurance, gas safety checks, to pay tenant-finder fees (costs me £300 per change of tenant). Never mind maintenance, repairs, void periods, etc.
It's definitely not the cash cow that it's made out to be, and self-managing is only for the experienced.
Good luck if you decide to go ahead; I think many LL are thinking of selling up recently.
OP what do you mean 'the property market isn't so good at the moment'?
It's never been more of sellers market across the whole of the UK.
Any house in any area WILL sell quickly and easily if it's got a sensible and realistic asking price... if however it's got a stupid, unrealistic asking price way above recent comparable sales and a greedy, deluded vendor, well that's a different matter.
^the property market isn't so good ATM^=first time buyers might have a chance of escaping the private rentals trap if we sold.
Unless you are actually in negative equity yabu. You are holding out for unearned profits that you feel entitled to rather than accepting that the market hasn't risen as much as you hoped. Your decision is actively contributing to the fact that our children's generation may not get to own their home until their parents are dead, and then only if they are lucky enough to have parents that conveniently die without incurring care home fees.
@daffodilbrain Thank you. Our broker also recommended us to go for interest only in case we got jammed. Is it expensive to maintain when tenants living there? Have you bought RGI or heard about guaranteed rent scheme?
Thank you @MoreProseccoNow! I'm not planning to make profits as long as the property can be maintained (e.g. mortgage) by its own rental income. Where can I find an IFA to speak about? My main concern is about the change in taxation and other costs of renting it out.
Some agencies offered me the guaranteed rent scheme for a fixed period. There is no commission and the moment when I sign the contract, they will start paying the rent doesn't matter if there are tenants or not. The amount of rent paid by them is very close to the market price. However, I'm scared they may put homeless people in the property. I do not against providing the place for homeless people, but I'm concerned they may not be the best tenants to take care of the property. What is your opinion or experience?
I would like to manage the property by myself, but I'm not confident because of the lack of experiences. With agencies, one is charging 8% plus VAT, another is charging a flat rate (about £65 a month) but I have to pay for a two week rent each time they found the tenants.
Thank you for the recommendation of the website, I will check it out. I'd appreciate if you could share more experiences of being a LL, what's the best way to minimise the fees and how to do tax?
Have you thought about the increased stamp duty on your new home due to it being a second home?
Surely with all the new changes it's just not worth the hassle anymore.
@sall74 @mohuzivajehi thank you both for the reply. I'm not intending to make profits from being a LL, just want to hold the property and sell it in the near future
We are based in London, and bought the property two years ago when the price was at its peak. We then spent a lot on refurbishment etc - it was not in a living condition (both DH and myself do not have rich parents, we worked extremely hard to save the deposit for our place). The price of property is dropping significantly in our area, neither could we sell the property fast nor would make any profits - in fact we would lose quite a lot of money.
The other thing to check is if your local council are looking for homes to rent out. You get guaranteed rent (upfront, 3 months in advance in our borough) and whilst you are still liable for ongoing maintenance, if the tenants trashed the place the Council would have to repair it. It's cheaper than using an Agent too.
@scaredofthecity yes, we will have to pay for the extra stamp duty. We thought about selling our current home, but there is no way to sell fast. The only way to avoid paying the extra stamp duty is to complete sales of the first home and purchase of the new home on the same day. Also, we will actually lose money to sell at the moment, the market is changing a lot in our area. We bought the property at a higher price plus we spent quite a lot on refurbishment, if we sell now, the asking price would be even lower than the original price we paid
Thanks @trinitybleu! I called the council yesterday, they would pay nearly 25% less for the rent than the market price. In this case I would be worried about keeping up with the mortgage if I choose to not go for interest only
Asking this sort of basic question probably means BTL isn't for you.
What will you do if it doesn't rent? Issues with maintenance? Problem tenants?
BTL is fine if you want to run it like a business. But it isn't something you do on the jolly.
Though in the short term it might hurt to sell the house at a loss, but that is how buying and selling works. Personally I'd get rid and move on.
I've no experience of guaranteed rent scheme but have had a BTL property since I got married 12 years ago. My top tips are: do the maths, the greater the deposit the better the chance of making a profit, expect it to be a bit of hassle until you get stable tenants. Couples make the best tenants. Don't take in any one on benefits. Rent it out with the basic of furniture - people have there own stuff to fill it up with. Make sure you can afford to pay the mortgage for a couple of months at least in case it's empty. It's a business investment not your home be practical.
Your mortgage company gets to decide who you can/not rent to: mine stipulates that it must be to those who are employed, & not on receipt of housing benefit. The agency will need to comply with this.
I pay 10% + VAT in fees & the agency charges £300 for tenant finding, but it will vary according to the part of the country you are in.
In your shoes, I would absolutely NOT self-manage; you really need to know what you're doing, e.g. date-stamped photos in inventory for deposit scheme etc, how to serve notice & on what grounds.
Perhaps have a few agencies round to give quotes for buying & selling. See a mortgage broker, but 1st of all ask your current lender if they would accept you for consent to lease - they will have questions to ask over the phone to see if it's viable.
I have BTL property
I have interest only. Just sold one after 10 years and the capital growth was higher than if I had invested any other way. Most interest only mortgages will let you pay down the capital by up to 10% per year anyway. So we tend to collect the rent in first over the course of the year, pay all bills etc relating to the property, save some as cash in hand for voids and then use surplus to make a capital payment.
BTL mortgages - the figure of covering the mortgage by 125% is a bit out of date now. Many are looking for as much as 140% of mortgage payment. Remember also that the rate will depend on the loan to value and again whereas before many would do 25% ltv a lot of mortgage providers are looking for higher ltv now.
Definitely find a broker and ask about Let to Buy, which is a different scheme that allows you to let current property out to buy new residence.
I have always managed my own properties and been lucky with good tenants or okay tenants (at least not bad ones). We use an agent to find tenant, do viewings, do inventory and credit checks and check in. As you have already lived there do you know plumber and electrician if you had issues. I manage a property 2 hours away and my handyman have sets of keys and will arrange with tenant about going in for repairs - in the manner tenant wants - either going in whilst they are at work or going when they are there.
I find if you are a good landlord ie respond to and deal with their issues they are good tenants.
If we get a bad Brexit (the only kind there is), property prices are likely to go down further. So I think you would be better off selling now.
I'll try to reply more later as I rent a flat but:
The only way to avoid paying the extra stamp duty is to complete sales of the first home and purchase of the new home on the same day.
Check out if that's right - there was a 3 year rule where if you sold your previous main residence within 3 years of buying your new main residence then you got the stamp duty back, but I don't know if that was just a grace period when they brought the stamp duty change in - I thought it was still in place though.
I'd advise much more research before you get on with this, but yes to RGI - if tenants are not eligible for this, they are already statistically more likely to default, and not to be easy to claim against for rent arrears etc.
Is that the scheme where you rent to the council and they sublet to people?
Great idea in theory. Now go read the landlordzone forum to find out what can happen.
This is a risky game for one property inexperienced landlords.
And if won't make a profit even if you get the rent paid and no problems, why do it?
Just a note re the extra stamp duty, you do not have to complete both houses on the same day to avoid it - if you sell the first property within 3 years of buying the second you can claim back the extra SD paid.
I rent my old house to my mum and me & DH are currently buying our own place (we've been renting elsewhere) - my IFAs honest advice when we started the process was sell the other house, I make no money from it, it's created a load more paperwork for our mortgage and it's about to cost me £11k in extra Stamp duty
But it's my mums home so I can't - if it was anyone else it would on the market! It's a genuine millstone to be honest.
Also just for your info My mortgage co specified I had to use an agency or they would increase the interest by 2%
So if you're planning to sell in the ''near future'' what indications are you seeing that suggest the market is going to be considerably better than what you perceive it to be at present?
Regarding letting it out the simplest question you have to ask yourself is how long can we pay both mortgages for if/when the property is empty or, even worse, when my tenants stop paying rent and it takes me several months and £xxxx to evict them?
Also this is worth a look for all these ''accidental'' landlords who might ''accidentally'' forget to inform HMRC of their rental income...
HMRC is a good point, never worth trying to dodge the tax man!
Personally I just rang them up to ask advice and because the income is less than £2.5k pa they put it on my PAYE tax code. If it's more than that though you will have to do a full self assessment ever year which IMO is a pain in the ass
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