Buy to let

[melissacx9]

Hello! I'm new to this section of mumsnet and I admittedly have very basic knowledge of property (22 and still living with my parents) so I'm hoping that some of you would be able to shed some light on whether or not this is possible.

My partner and I are hoping to buy a home in the future and we are currently saving for our deposit. However, I am a student midwife - just starting my second year now, if all goes smoothly I'll qualify in Autumn 2020 - I am unable to work alongside this as I'm either on placement 37.5 hours a week, or in university for the sameness amount of hours, so holding a job is near impossible. We also have an 18 month old.

My partner however is employed, earning a salary of £30,000 minimum (he has regular overtime and often earns £900-£1000 per week, but I'm under the impression that overtime won't be taken into consideration when applying for a mortgage). He has worked for the company for almost 12 months & has passed his probation.

I was looking out of interest at properties in the area that his mum lives (much cheaper than buying a house in our area) and although I personally wouldn't want to live there as it's too far away from my placement area, the houses are much cheaper there - around £70,000 for a 3-bed semi-detached.

My partner and I were talking about the possibility of him buying a property such as this in the next year or so with the hopes of renting it out (his sister is moving back from Edinburgh net August and would definitely be interested). He would have a deposit of approximately £7000 to be able to put down on the property, although we would consider buying a cheaper property to invest in and do some work on over the year or so if it made a difference to our budget.

We would then be looking to buy a house in 2021/2022 once I have been working for a year with a steady income so that we would both be able to have our names on the mortgage and hopefully afford a bigger house. During the time in between we would have also hoped to save towards a deposit for our home.

I'm not sure about whether we would hope for him to keep the property and rent it whilst owning another home, how affordable this would be for us in terms of getting another mortgage, whether we would have to sell it to them put towards another house.

I feel completely out of my depth right now as it is a very new idea and also something I haven't ever really looked into as I have always focused on buying a house with the hope of living in it long term. I was hoping that someone on here who knows their stuff about letting etc would be able to give me some advice and maybe some ideas of where to look for more info?

Thanks!

I am no expert on this but my gut feeling is you'd both be taking on a lot and maybe too much.

For a start, interest rates for BTL are higher. Secondly, he'd be taxed on the income from the flat. Third, if he is your partner and you are not married, you need to seek legal advice because unless your name is on the mortgage as a joint owner, you will get nothing and would be effectively homeless if you split up.

You will also need to factor in childcare costs unless your parents are happy to do this for you long term, and I doubt he could borrow enough for a 2nd mortgage on an income of £30K.

Bear in mind that if property is cheap, rent will be too.

You used to be able to offset mortgage interest against profit when accounting for tax, but this is gradually going and will finish completely by 2020 ( I think). So many, many landlords are selling up as their profit won't be as great once this takes effect.

One of the main points in a buy to let (apart from the monthly income) is that the house itself might go up in value. In most areas this isn't happening at the moment. So if you aren't making much money each month and the house isn't going up in value then there isn't much point in it.

Remember you'd need to factor in costs on top of the mortgage costs - landlord insurance, maintenance, gas checks, repairs (e.g. new boiler).

Buy to lets are not looking great at the moment really. We've just sold both of ours due to rising interest rates (so higher mortgage costs) and the erosion of mortgage interest relief.

You should speak to a financial adviser.

They will be able to talk you through how much you can afford mortgage-wise and what you'll realistically be offered by a mortgage company.

Buy to let mortgages generally give a lower loan to value so you might need more than a 10% deposit and the rates tend to be slightly higher as there is more risk (because the one paying the mortgage won't be the one living in it).

I think there are also rules around how much you pay in tax if you're buying a second home and subsequently selling investment properties (although that might be just Scotland, don't know the rules down South)

You also need to consider the location. The reason that a 3 bed house is so cheap (around us anyway) is generally because the area isn't desirable and you might have problems trying to rent (If the sister in law moves on) or sell on later. Conversely it could be up and coming and the value could jump. Do your due diligence on the area and make sure you're not buying a future problem.

If you do rent out you need to make sure you keep up to date with applicable laws (gas and electrical safety/energy performance/rules around leases etc.) and if you don't want to fall foul of the tax man, you need to file Self Assessment tax to declare your additional income and pay any tax owed. Failure to do that could result in penalties and interest.

If you have a good salary in a couple of years it is possible to get a second mortgaged you choose to keep it as an investment for your pension or whatever. We were required to ensure that rent payments covered 125% of the interest we pay (interest, not capital repayment although our rents cover 125% of both) and make sure you can pay both mortgages if the investment is empty for a period of time.

It can be worth it but just make sure you seek the right, professional advice before deciding!

I looked at BT:L not long ago and the deposit was always around 25% not 10%. So that would be around £18K deposit.

You need to bear in mind property values. You could invest that money in some sort of stocks and shares ISAs and it might make more pa than you would get if you rented out a home and the increase in value of it. Property needs to increase annually to be worth investing in.

My understanding is that if he owns a house, the two of you can’t get first time buyer tax relief if you buy a house together - I could be wrong so you might want to take advice on that point as well.

I just sold a BTL flat because the tenants defaulted on the rent. It's happened before, it would happen again. I lost a years rent plus having to pay council tax, management fees and mortgage for a year!

Bear in mind that it costs money to buy and sell a property so if you're only going to hold on to it for a couple of years those costs may well wipe out any profit you make, unless prices are rising steeply (which they aren't at the moment).

mn isnt the best place for this as there are a lot of landlord-hating knobbers, try landlordzone.

immediately obvious pitfalls

• rent to family: never do that
• the bigger deposit and stamp duty issues above
• the ever changing legislation which you must follow to the letter
• the need for hefty insurances : not just buildings and contents, but rent guarantee, legal cover, malicious damage, home emergency.
• agent fees for full management, maintenance, fixes,

cost it all up with a realistic rent for the area.

Why are you and your partner prioritising buying a property to rent to his sister over planning a home together?

Most mortgage lenders insist that for BTL, the rental income is at least 125% of the mortgage, and also on at least a 25% mortgage deposit.

For most people, BTL doesn't stack up financially, unless they have a tiny mortgage (or none at all).

I thought most btl mortgages won't allow you to rent to family members?

I would also advise against going down this route. Having been a landlady for over 10 years, I would say that it’s important to have a good cash flow to even consider BTL. Presumably, a 70k house can be rented for very little, say £400-500 per month? You need to consider mortgage costs (very high on BTL) and other costs like inspections, management, landlord insurance, taxes etc. You’ll probably find that there’s very little money left over and you could be in real financial pickle if the tenant defaults or you need to fork out for a new boiler or roof. Sounds like you’re still young, not financially established and it could cause you problems.

Instead, you could consider:
-saving for a higher deposit on your first property as that will mean much lower interest and much lower monthly payments
-having rainy day investments/savings
-read up on Lifetime ISAs - a great government scheme that could generate a £££ more towards your deposit
-you could put a little extra into your pension schemes too.

If you didn’t have a mortgage, a £400 x 12 (£4800) per annum is a very good return on a £70,000 investment. You wouldn’t get it anywhere else. You should not do it with a mortgage though.

No one has mentioned Calital gains tax. This property provably would not make enough to pay this, but all small property investors need to be aware of it. Being a landlord isn’t easy and first time small landlords are better served by appointing an agent.

In your circumstances, I would concentrate on buying a house for the two of you in joint names, with a legal agreements drawn up regarding disposal should you not marry, and enjoy living in it.

To be blunt op it is a non starter... not 1 good thing going for the idea... sorry

Need 25% deposit
Can't rent to family
Btl mortgage companies don't like lending if you don't own your own house
Entry and exit costs are high
House prices are looking likely to fall
He will be taxed on rent as income

There are probably more

You will have to pay greater stamp duty on your next property I believe