Thinking of buying a buy to let

[Location19]

Hi all,

I am a single parent, teacher and own the property I reside in with my 2 DD. Moved from London to the south east and have no mortgage. Property is worth approx £260k

I am thinking of purchasing another property for investment/Uni fees / retirement etc.

I have about 20k savings. Thinking of buying in in zone 6 for about £325k , rental about £1600 potential.

How realistic is this for me , and do you think a lender would lend to me? The Stamp duty is a killer😡🤯.

Any advise would me much appreciated.

You would need a 50% deposit to get a BTL mortgage

You dont need 50% but you will need 25% so would need close to 100k including stamp duty to buy the property you mentioned... so completely impossible sorry

That’s only for main stream lenders. Other lenders (like mine) have different criteria (I didn’t need to have £25k income for example). I’m also in the south east but amazed at your potential rental yield! Ours is only 3.8%

Stamp duty is a killer though. I think you’ll need more capital to start with

You'll need a 25% deposit for a buy to let

I wouldn’t recommend it. Have you looked into the tax implications on BTL? I’d also say that you need a solid financial buffer for void periods, evicting tenants that have stopped paying rent. You’d also need to consider what will happen if mortgage rates go up as it could become a huge financial stress for you.

For alternative investments, you could consider making higher contributions to your TP or start a SIPP. If you’re under 40, you could also start a Lifetime ISA. And for uni fees etc, just get a an ISA and put the money into a range of funds.

If you really fancy putting some into property, maybe consider moving somewhere a little more expensive and having a bit of mortgage to pay off over a few years? You could then release equity when uni comes (by moving somewhere cheaper again).

Stamp duty and legal fees will use up your £20k savings.

What you could do is borrow 25% against your own residential home as your deposit and then get an interest only mortgage on the buy to let property for the remaining 75%. This would cost a lot less than £1600 per month but you could overpay either of the two mortgages with the remaining rental income each month to start reducing the balance.

Thanks guys for all advise. What about taking the equity out of the property I own ?

Angelsus this sounds like a realistic option for me. I hear what your saying Jojo and I am considering just buying in a more affluent area and just having one property but I just didn't want to upheaval the DC yet.

You could take equity out of your home to fund the deposit on the rental. Just bear in mind that you’ll then have 2 mortgages to pay. So additional debt and your home at risk if you can’t keep up the repayments. The £1600/month will push you into the 40% tax bracket if you’re a full time teacher.
And are you sure of renting a 325k property for £1600? I live in zone 5 and am quite an experienced landlady and it sounds like a very high yield for outer London.

Instead of taking out a BTL mortgage why not rent out your current home and then take out a new mortgage on a new property for your family to live in?

Catndog, I looked into let to buy rather then buy to let and I was told it was pretty much the same thing. I don't have enough funds upfront to just buy a new property will need some fives taken from the equity of my current home, unless I buy outside London/southeast.

Jojo - I know lots of people who are forking out £1600+ for three bed /garden properties in zone 5/6.

*funds

I am hopefully that I could secure a three bed property for £325k but understand it will be difficult.

I just think that as a single parent it's really hard making these big decisions on your own without being able to discuss the pros and cons over with someone.

Zero chance getting a BTL mortgage on a £325k property with only £20k savings.

You'll need to release equity in your own property to finance the BTL, with interest rates so low at the moment you might decide its worth it.

Also I bet you'll never get that yield! 5.9% in london? No chance. 4% is considered a good income yield in London, with the majority of investors relying on capital appreciation to prop up total yield.

I'm not sure this is a great idea, what with it being all your savings, only having one income as a single parent, being an inexperienced LL, the increasing burden of rental legislation etc

Yes, I can imagine £1600 rent for a 3-bed garden flat/terrace but can't imagine buying it for 325k. You're hoping for about 6% rental yield which is incredibly generous for London.

Will be looking at other option rather then BTL. Thanks for all the advise.