Advice please on buying an investment property!!!!!

[sweetheart]

Dh and I would really love to buy another property - largly because neither of us have a pension. What I'd love would be to build up a property portfolio but I'm taking baby steps and starting with 1.

So our situation is that we currently put a certain amount of money into a savings account each month. The amount we save is about equal to our monthly mortgage repayments so we know we could afford another mortgage but we have no cash avaialble for a deposit, however we do have about £40 - £50k worth of equity in our house. Could we use this as a deposit and do a self certified mortgage?

Does anyone have any experience of doing something like this?

Not the best time to invest in property really.Prices are slowing and credit tightening.Why not see an IFA They have all the info on investments.Buy to let is not what it was as many landlords are subsidising rents atm as property is so expensive

we don't have money for a deposit as we have used the money we saved recently to pay for xmas in advance - we usually use my xmas bonus from work to cover christmas but this year we decided to be money wise and pay for it in advance.

We could probably save about £10k over the next year and use it as a deposit in a years time but I'm nervouse that if we have the money sitting around that we will find ways to spend it - holiday, new furniture etc!

I'm not too worried about the rental as, like I said, we could cover the mortgage each month. Renting it would be a bonus really.

I'm just starting to look into this really and I just wondered if it was possible or if it's a pipe dream. I know you can use equity in one house as a deposit on another but I'm not really sure how it works and with 2 small kids I'd be warry of loosing both houses.

I've decided that sometimes you have to take calculated risk's in life to be successful.

The mortgage for a buy to let is governed by the rent you recieve, most lenders will want the rent to be 25% more than the mortgage itself. Other than that you will neeed usually about 25% deposit,you can get less but really as I said the mortgage is rent driven.
For example if you have a £100k mortgage it will cost @6% £500 month, your rent will have to be £625 month.
You will need to consider the tax implications of Buy to ltes as Capital gains tax will apply on nay profit, do a search on this site as a while back someone wrote a brilliant explanation of CGT and investment properties
I am wary of pensions unless your employer is putting the money in or you have a final salary scheme available. My issue is with annuity rates, 10 years ago £100k would have got you a pension of £10k year, now it is about£4-5k year. If that continues to drop how can it be a good investment to put money into something that will give you a poor return and that is in spite of the tax advantages you have.
Have you considered ISA's? They are tax free savings and when you retire the income you take is tax free unlike pensions which are taxed.

Thanks BGD - this is (as I thought) alot more complicated than I imagined!

Is it not possible to just take out a personal 2nd mortgage rather than a buy to let mortgage? If we planned to rent it could we rent it for the exact cost of the repayments so we didn't have to pay any tax?

You can do that too, it is possible but lenders generally like you to live in the property if you are going to buy it with a residential mortgage IFYWIM.
YOu can rent for the cost of the mortgage but you would want to rent it for more in case you had to cover costs such as repairs etc, otherwise you'd be out of pocket. You can offset such costs against the tax payable.

Sweetheart, in my opinion you would have to be absolutely barking to buy something and not consider letting it - what if you buy something and house prices go down ? You'll be subsiding an investment that will be losing money. At least if you let it you will hopefully be covering your costs. You can't take a second personal mortgage on something you intend to let. And you only get tax relief on the interest part of the mortgage.

A second house is inevitably a money pit and you have to have a healthy safety net put by really to make sure you can cover any voids and all the unexpected maintenance costs that come up. And also if you let it and someone stops paying rent, it will take a good couple of months to evict them through the courts, you could well end up with a lot of damage to repair.

Any gas appliances have to have a gas safety certificate once a year. You have to protect any deposit in one of the new schemes or be sued up to 3 times the amount.

I would think really really carefully about doing this just at the moment until it becomes much clearer what is likely to happen with house prices. There is a lot of uncertainty around at the moment.

If you are still keen on doing it I would definitely speak to an Independent Financial Advisor.

We have a number of investment properties and I agree that it can be quite complicated. You will be hard pressed to get a mortgage of more than 75% unless you go to a less well known mortgage company. Your lender will want to see proof of the rent and may also want to see actual evidence of your income in case you can't let it. Also factor in repairs, agent commission, the costs of sprucing up after a tenant has moved out, legal fees etc etc.

wow - see these are just the sort of things I need to have considered 100%. I know we could afford another mortgage but I guess it's all the other bits and pieces that end up costing the money.

What about using a letting agent to rent the house for you? I'm guessing they charge a percentage of the rental but they then manage the upkeep of the property??? Or is that just wishful thinking?

Also, does anyone know if it is realistic to consider using the equity in our house as a deposit or should we just save some cash up for a year or two?

no doubt someone will correct me if i;m mistaken, but you have to pay income tax on rental income if it's more than about gross 4.5k per year. it's not as simple as rent = mortgage. it's rent less interest on mortgage payments less any maintenance costs = income, on which you pay tax.

(also you can't include capital expenditure, eg a new extension in expenses)

DO NOT USE THE EQUITY IN YOUR HOUSE.

Sorry for shouting but please do not use your equity. That is your cushion and your safety net. Do not use it!

Our agents charge between 10% and 15% plus VAT depending on the part of the country and how many properties we have with them.

There has been a lot of good advice on here, all I would say is that if you are going into this, go in for the long run (10 years plus) as house prices do fluctuate over time and in the long run, you should make a profit.
Personally speaking I do not think house prices will crash, stabilise and maybe dip a little yes, but right now there is still a shortage of housing in the UK. Interest rates will need to rise and unemployment will need to rise before we see prices crash.
Back to my original post if you are thinking of retirement planning then you need to spread your bets a bit more amd look at ISA's.

Agents manage the upkeep but don't pay for it.

ana gent manages the property in so far as they agree repairs to a certain amount before referring to you, chekc out references , take deposits and handle rent but can cost up to 15%(plus vat) of the rent to do so. If you are putting moiney into a savigns accoutn can you not use that as a deopist ? It would need to be a btl and you have to think abotu hwo you would cover your costs if it went unoccupied for a while (services, council tax, insurance etc). Can you not just offset or overpay on your current mortgage reducing your monthly outgoings longer term to then fund a pension.

Piggy,

I'm sorry if this is a really nosey question and fel free to tell mw to bog off but can you tell me how you got into property and if it's worth the investment?

Also, how do you get ideas of the costs and rental income before you buy a property? How can I prove a rental income and know what maintenace I'd need to pay out for?

We are in the South which means buying a 2nd home is a big commitment, it was hard enough to get on the property ladder to begin with! Dh is keen to look at investing in a University town.

We could also look at buying abroad and getting ourselves a holiday home to boot but I appreciate that mortgaging a foreign property would be alot harder.

we have no deposit as we currently have no savings but over the next year we will have some building up. I have just changed jobs after maternity leave so we are going to save my additional income rather than spending it. We are used to living on a smaller income so we decided to do something sensible with the extra each month rather than squander it!

We are on a fixed rate mortgage at the moment, it runs out in about a year and we will have to look around for something else. We picked a fixed rate as I like to know exactly what our outgoings are each month so I can budget in advance. I'm a bit neurotic when it comes to money - can you tell

I guess paying off our mortgage would be a good idea first but I now investing in property can give a good return in a shorter time. The rise in a house price over 10 years could be enough to clear our 25 year mortgage for example!

Offset mortgage would be excellent and then you can draw back the money if you ever need it.

oops ignore my previous post then, though some lenders will let you overpay by 10% a year on your mortgage

offset mortgage whats that then?

oh thats one of these one account type things isn't it!

yes but you cannot have one (yet) because you are tied in with the fixed rate

Put simply offset is when you have a mortgage of say 100k , have a parallel savings account, say 10k, at same rate of interest, so you effectively only pay interest on the difference between the two amounts ie 90k. However the savings element is still accessible so you could withdraw it for any purpose aya nby time since it doens't actually reduce the mrotgage amount itself , unless you choose to use it to pay off a lump sum. In your circumstances I would have a period of say 6 months to see how much you actually manage to save each month in case it isn't as much as you hope.