Is a Buy to Let a bad idea?

[WhoIsnt]

I currently am sole mortgage holder on my flat in London. My partner and I now want to buy together - probably somewhere outside London for a greener life.

I'm loathe to sell the flat I worked so hard to get, and also in case it doesn't work out with partner, I would struggle to buy again in London if I sold this place.

I know some people who have let out London flats and then bought elsewhere outside of London. After a quick right move check, the rental income gained from the flat should absolutely cover the potential buy to let mortgage figure (guessing at 8% mortgage). LTV max 66%.

We're not wanting to buy the biggest place possible in the new location, more important to us is keeping options open so we'd be happy to get a teeny place if it meant this was possible. It also just seems like such a massive gamble to sell and move in one fell swoop to somewhere we've never lived.

But I asked a mortgage advisor and he said bad idea and as a financial advisor he'd advise against it. Has anybody done this? Any words of wisdom? I'm sure he knows what he's talking about but I want to understand if it's just my priorities are different to his, or if he's really understood my perspective and it's still a bad idea...

i understand your plan but golly I don’t think I would. Things are very difficult these days for landlords and will probably not improve in the near future.

having said that the London market in certain areas is really hot rental wise and so you could probably raise some money, but there are lots of extra costs these days, stamp duty being a big one.

your adviser has said no, and I, a random on the Internet who has a rental property suggests you think very carefully

The income you make on the rent is taxable, so assuming you're a higher rate tax payer, you'll be taxed 40% of the income. You'll also need a sizeable savings pot for things that go wrong, as well as upkeep of the property. Estate agent fees to find a tenant are higher than I expected (I think it was one month's rent for ours + an ongoing fee if you want them to manage the property) and there is a lot of turnover in London, so you might be finding a new tenant every year or so. There's also a risk your tenant will stop paying and you'll have to cover the mortgage indefinitely until you can evict them and find someone new. Depending on how desirable the flat is, you could also struggle to find a tenant. There are a lot of risks and I wouldn't do it without quite a lot of savings.

There was a guy on ‘Call the Bailiffs(?)’ last night who owed £180,000 in rent from 2 places. He went bankrupt, didn’t have to repay anything.

Well these are sobering but probably sensible messages to receive. @hannahcolobus did you end up buying with your partner in the end?

I guess I'm probably being a bit naive about all the extra costs involved and how much I'd need to allow for repairs etc. I didn't even think about if the tenants didn't pay...

Buy to let is still a viable proposition, its borrow to let that's become a bad idea. 66% LTV is not much of a cushion in a falling market, on top of all the other risks highlighted by those above. Your advisor is right.

I did exactly this in 2019 and regret it. It's a millstone round my neck and can't wait to sell when current tenants move out

I was a landlord in London for about 10 years and finally sold the flat last year. It was also a flat I used to live in and I then got a Let To Buy (not Buy To Let) mortgage on it. Financially I did well out of it although have also paid a huge amount of tax (especially the capital gains which was particularly frustrating because the value went up during the time I lived in it and not during the time I was renting it out, based on valuations).

I found it stressful though and wouldn't do it again unless I had significant savings to dip into. It seemed like whenever I had a tight month, something in the flat needed repairing. In my own home I'd just live with stuff being less than perfect but of course as a landlord had to fix immediately.

I only had one problem tenant who moved abroad and sublet the flat to strangers without telling me! Fortunately it was resolved quite quickly and without damage etc.

I understand your concern about not being able to buy again in London if you ever needed and that's a strong reason to consider it.

I did this, albeit in slightly different circumstances. I had no choice but to rent my flat out but would caution others against it until they’ve fully run the numbers. This includes:

Additional SDLT payable on your house purchase (refundable if you sell your flat within three years).

CGT on any increase in flat property value when you eventually sell it (pro rated to the years you rented it out).

Income tax on profit from rental income (deductible expenses include management/agent fees, service charge and ground rent, repairs and 20% of mortgage interest).

Agent fees, if including management can be 10-20%, payable up front.

Tenant onboarding costs (checks, tenancy agreement, deposit protection, inventory) can be £500-£1000 easily. And are payable each time you get new tenants.

As pp said, any minor repairs/inconveniences need sorting asap. Allow 5% of income for repairs.

Landlord insurance - it’s a must, around £200 pa.

If you’re leasehold, you’ll likely need consent from the freeholder to rent it out.

You’ll need consent to let from your existing lender, or switch to a BTL mortgage.

The timing of my tenancy agreement and service charge means I have a 2-3 months where both the 6 month service charge and estate agent fees are due up front. These months I still have to pay my mortgage but all rental income goes on paying for these expenses. Make sure you have a pot of savings you can dip into to cover you for times like these.

And get used to the fact that tenants might not treat your flat with the same care as you do. View it as an investment, not your home.

There are definitely people who make this work, but it’s not for me.

I let my flat out in the South East. It's a one bed garden flat for £1,350 a month. I've been lucky with my tenants and have no regrets. My letting agent charges 10%.