Help with buy to let please

[Wiifitmama]

We are in an unusual situation. We own our flat in London. We are leasehold. There is a flat above ours (old Edwardian house sit in two). Very long convoluted story but the opportunity has arisen where we may be able to purchase the freehold of our building along with the upstairs flat. We would really like to do this for multiple reasons - none of which are to make a profit now - it's all long term for our own children.

Anyway, we are not rich. The only way we could get it is to get a buy to let mortgage. My dh works full time in a professional capacity but not a huge salary and that alone will not secure us any mortgage. I see from buy to let information that we need a 25% deposit. I am working on ways to get this (family loans) but my dh seems to think that we won't need it as we have approximately £350,000 equity in our flat (mortgage of around £100,000). I don't think this will make any difference. Does anyone know?

Also, if they look at our ingoings and outgoings, there is no extra. We cannot afford the mortgage from our income. We would pay it out of rental. Even allowing for two months empty a year, the rental value would be almost double the interest. Any idea if this would be enough?

I never planned to be a landlord and have no plans to buy any other but we do need to try to get this flat so any help would be much appreciated!

There are a basic 3 points that mortgage companies look at when offering a BTL mortgage.

Firstly you must have the deposit usually about 25%

Secondly if you don't own a certain number of other properties, then you have to show an income in excess of I think it is about £35000 per year.

Thirdly the forecasted rental income must be 1.25 times your monthly mortgage payment on the property.

There might be some differences in the figures All mortgage companies have their own rules but that is generally an over view. There other things that mortgage companies look at such are credit files and tracing where your deposit comes from etc

Hope that helps

What are your prospects for earning more in more in the future? There are plenty of threads on here about the actual costs of being a landlord. It doesn't sound to me as though it's affordable.

Would you consider selling your flat and moving elsewhere? If both flats are on the market at the same time both you and the upstairs neighbour could perhaps make more out both your sales.

Our income is in excess of £35000. More like £60,000. The forecast would be well over the 1.25 times monthly mortgage. Just not sure about getting the 25%.

We are not moving/selling. Staying put, but want to get our hands on flat above.

Can you increase the mortgage on your current property to finance the deposit on the BTL? Effectively that is how we financed ours. You will need to have the actual cash - not just the equity in your property if you want to make the purchase, and it seems to me that your current mortgage is low relative to your property's value. Of course, there is inherent risk in doing so, as the most important thing is that you do not default on the mortgage of your own property. But if it's affordable that is what I would do.

What Lemon said, remortgage your own property to raise the deposit. As soon as you can, start switching the loan on your own flat to the BTL one so that (a) you don't pay tax on it (b) most of the risk is on your investment flat rather than your home.

Thanks. I would think we could do that. We have so much equity. Would it help taking the buy to let out with the same bank as our mortgage?

Probably not. A word of warning, you may find some banks won't lend because you own both the flats in a single block (we had this problem) so I would suggest you get a mortgage broker who will be able to search for ones that aren't bothered (Barclays Woolwich and, I think, Birmingham Midshires have both been fine but there are probably others too).

Why on earth would that be a problem? Surely it's an advantage to own the freehold and both flats in the building - in essence, the whole building.

The lenders seem to think that (a) you might try to unite the flats when you can't afford to do this without a BTL mortgage (b) if you run into financial trouble, there will potentially be two (or more depending on the size of the block) rather than one property to dispose of which will potentially push down the price. I think it is a leftover from the 2008 crash when banks found themselves having to repossess several new-builds in the same block all bought off-plan by one investor and essentially flooding the market. It's not really appropriate for small-scale conversions but it's all part of the "Computer says no" culture that banks apply.