Buy to let and rental amounts

Buy to let and rental amounts

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Discussion

Gregmitchell

Original Poster:

1,739 posts

116 months

Thursday 19th May 2016
quotequote all
So the banks are changing/changed their buy to let criteria, lower LTV of 60%? and a 145% return on borrowing... I've just experienced this first hand, and I feel this is going to be the end of the normal buy to let and mainly a cash buyers market, OR rental prices are going to sky rocket to keep the average Joe in the game... my experience below:

Property value £450k.. mortgage of £230k required for re-mortgage purposes, so LTV about 50% which is ok.. but I need a rental income of £1440 to get the mortgage, luckily in Oxford this is pretty normal, but in other areas this is not going to be achievable... I await a deluge of properties hitting the market in the coming years due to people not be able to re-mortgage, OR rental prices increasing to be able to keep these properties in the hands of buy to letters.


anonymous-user

53 months

Thursday 19th May 2016
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But, this is only applicable in the South / South East and London.

The rent on my houses make 150% of the mortgage and 140% of the mortgage, both sub 20% LTV, both originally 30 year terms (bought in my early 20's so no issue with 30 years).

Majority of my friends are on 15-25k as a salary and can afford their own home when combined with a partner, again we are all still in our 20's, no real problem of affordability in the North West / North Wales.

ETA: 60% LTV rules will only come into effect IF you remortgage?

I bought a house on a residential mortgage, lived there for 1 year and obtained the banks consent to let, with my current mortgage provider even though they know I am renting the property out I can still remortgage on a residential rate ... (this is something I investigated prior to buying).



Edited by Trexthedinosaur on Thursday 19th May 15:04

red_slr

17,122 posts

188 months

Thursday 19th May 2016
quotequote all
N/W does seem to be a good market right now, we have just done our first one - house is worth £180k on a good day but rent is £1000 PCM.
Pretty good going I reckon. Similar house in the south would be well over twice the price, if not 3 time the price but maybe £1500 max rent so no where near the ROI.

superlightr

12,842 posts

262 months

Thursday 19th May 2016
quotequote all
red_slr said:
N/W does seem to be a good market right now, we have just done our first one - house is worth £180k on a good day but rent is £1000 PCM.
Pretty good going I reckon. Similar house in the south would be well over twice the price, if not 3 time the price but maybe £1500 max rent so no where near the ROI.
That is a good rent return.

In the SE a modernish 2 bed house in a good area would sell for about £270k and let out at £1000 to £1100 all day every day. easy to let high demand.




Ozzie Osmond

21,189 posts

245 months

Thursday 19th May 2016
quotequote all
Gregmitchell said:
Property value £450k..

.. but I need a rental income of £1,440 to get the mortgage,
This sounds like a business project based around a GROSS rental return of 3.84% if everything goes well. The actual NET return (after inevitable costs, including the mortgage interest, and tax) will be much lower and any wobbles could throw it miles off course.

Seriously, is this considered a viable business project?

Gregmitchell

Original Poster:

1,739 posts

116 months

Thursday 19th May 2016
quotequote all
Ozzie Osmond said:
Gregmitchell said:
Property value £450k..

.. but I need a rental income of £1,440 to get the mortgage,
This sounds like a business project based around a GROSS rental return of 3.84% if everything goes well. The actual NET return (after inevitable costs, including the mortgage interest, and tax) will be much lower and any wobbles could throw it miles off course.

Seriously, is this considered a viable business project?
I bought it 7years ago.... The return is very good, I've had the same tenant for 5 years. Oxford is in high demand, not to mention the 10% capital appreciation every year.

Ozzie Osmond

21,189 posts

245 months

Thursday 19th May 2016
quotequote all
10% compound for seven years on a property now worth £450k suggests you bought for £250k - nice return.

You now have £450k of assets and will be looking for a return on those assets. After costs and tax the rental will roughly break-even and this project is a punt on property prices (fair enough) as opposed to a rental business. For many people this can still make sense so long as they don't need any actual cash income from the project.

Regarding the punt on capital value, bear in mind that capital gains on BTL properties are taxed at 28% as opposed to the standard CGT rate of 20%. On the other hand you don't need to pay any CGT unless and until you sell. For the time being you can hopefully achieve further capital growth on that latent tax.

Gregmitchell

Original Poster:

1,739 posts

116 months

Thursday 19th May 2016
quotequote all
Ozzie Osmond said:
10% compound for seven years on a property now worth £450k suggests you bought for £250k - nice return.

You now have £450k of assets and will be looking for a return on those assets. After costs and tax the rental will roughly break-even and this project is a punt on property prices (fair enough) as opposed to a rental business. For many people this can still make sense so long as they don't need any actual cash income from the project.

Regarding the punt on capital value, bear in mind that capital gains on BTL properties are taxed at 28% as opposed to the standard CGT rate of 20%. On the other hand you don't need to pay any CGT unless and until you sell. For the time being you can hopefully achieve further capital growth on that latent tax.
Yup! I'm a charted accountant btw :-) but totally agree, I've weighed up many options, its still not the right time to sell any of the portfolio yet imo.

Ozzie Osmond

21,189 posts

245 months

Thursday 19th May 2016
quotequote all
Excellent - plenty of opportunity to share the knowledge here on PH. For the most part Finance forum seems to be an oasis of common sense in the swirling maelstrom of PH!

Gregmitchell

Original Poster:

1,739 posts

116 months

Thursday 19th May 2016
quotequote all
Ozzie Osmond said:
10% compound for seven years on a property now worth £450k suggests you bought for £250k - nice return.

You now have £450k of assets and will be looking for a return on those assets. After costs and tax the rental will roughly break-even and this project is a punt on property prices (fair enough) as opposed to a rental business. For many people this can still make sense so long as they don't need any actual cash income from the project.

Regarding the punt on capital value, bear in mind that capital gains on BTL properties are taxed at 28% as opposed to the standard CGT rate of 20%. On the other hand you don't need to pay any CGT unless and until you sell. For the time being you can hopefully achieve further capital growth on that latent tax.
Yup! I'm a charted accountant btw :-) but totally agree, I've weighed up many options, its still not the right time to sell any of the portfolio yet imo.

Ken Figenus

5,678 posts

116 months

Thursday 19th May 2016
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And of course it would be bonkers to sell and pay CGT and then later pay inheritance tax on whats left... I swear if they reduced CGT they would take more tax and free up more housing as I think a lot of us are sitting on stuff when we would often like to sell.

BoRED S2upid

19,643 posts

239 months

Thursday 19th May 2016
quotequote all
red_slr said:
N/W does seem to be a good market right now, we have just done our first one - house is worth £180k on a good day but rent is £1000 PCM.
Pretty good going I reckon. Similar house in the south would be well over twice the price, if not 3 time the price but maybe £1500 max rent so no where near the ROI.
Certainly is. My first rental in the NW was £42k with rent of £600. Plenty of bargains still to be had with rents that stack up well.

98elise

26,376 posts

160 months

Thursday 19th May 2016
quotequote all
BoRED S2upid said:
red_slr said:
N/W does seem to be a good market right now, we have just done our first one - house is worth £180k on a good day but rent is £1000 PCM.
Pretty good going I reckon. Similar house in the south would be well over twice the price, if not 3 time the price but maybe £1500 max rent so no where near the ROI.
Certainly is. My first rental in the NW was £42k with rent of £600. Plenty of bargains still to be had with rents that stack up well.
Thats a great return, what area?

philv

3,912 posts

213 months

Thursday 19th May 2016
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What happens if you come to the end of a fixed term on a fixed mortgage and it it is time to pick a new product from the same lender rather than go onto the standard variable rate?

will they let you choose a new product if the nee rules now make you ineligible if you were s new custoner?

BoRED S2upid

19,643 posts

239 months

Thursday 19th May 2016
quotequote all
98elise said:
BoRED S2upid said:
red_slr said:
N/W does seem to be a good market right now, we have just done our first one - house is worth £180k on a good day but rent is £1000 PCM.
Pretty good going I reckon. Similar house in the south would be well over twice the price, if not 3 time the price but maybe £1500 max rent so no where near the ROI.
Certainly is. My first rental in the NW was £42k with rent of £600. Plenty of bargains still to be had with rents that stack up well.
Thats a great return, what area?
North wales (a few years back now though) currently Liverpool way where there are still bargains to be had literally hundreds of terrace houses.

anonymous-user

53 months

Friday 20th May 2016
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I am (was) based in North Wales, loads of houses sub 100k in and around Flintshire, lots of low skill work along the river / industrial areas with a high influx of Eastern Europeans so a huge potential market as they cannot get mortgages.

Had some in one of mine for 4 / 5 years, redecorated, never missed a payment, no trouble, etc.

dazwalsh

6,095 posts

140 months

Friday 20th May 2016
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Ive always thought the 125% (and even 145%) was far too low anyways, thats running very low gross margins if you can only just meet that. I would have thought 200% is a far safer figure.

MrChips

3,263 posts

209 months

Friday 20th May 2016
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dazwalsh said:
Ive always thought the 125% (and even 145%) was far too low anyways, thats running very low gross margins if you can only just meet that. I would have thought 200% is a far safer figure.
Kind of but that's only if you're wanting to rent it out as part of a full time business model. There are huge numbers of people that i'm sure rent their house out for many other reasons, and unless they can simply get an agreement to rent on their current residential mortgage, then the tightening of these rules may cause them some issues.

Don't forget, even currently it's 125% at 6% interest, even if you're applying for a product with an initial rate of 3%, so the rent vs mortgage payment can be quite a large gap already. If interest rates rise, then i'd assume the 6% stress rate would also rise, add that to increasing the requirement to 145% and very quickly you can see an enormous swing in terms of how much could be borrowed when applying for a new rate.
It's the speed at which this will impact the market that causes me the greater concern.... you'll end up either with people selling their house (reducing the volume of rental property's available) or increasing their rent to cover the costs. So for people who are saving to buy a house and/or renting for any reason.. it's not all roses.

trowelhead

1,867 posts

120 months

Wednesday 25th May 2016
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BoRED S2upid said:
Certainly is. My first rental in the NW was £42k with rent of £600. Plenty of bargains still to be had with rents that stack up well.
Sounds like my kind of deal! Love the cheap high yielding stuff.

nct001

733 posts

132 months

Wednesday 25th May 2016
quotequote all
trowelhead said:
BoRED S2upid said:
Certainly is. My first rental in the NW was £42k with rent of £600. Plenty of bargains still to be had with rents that stack up well.
Sounds like my kind of deal! Love the cheap high yielding stuff.
People just don't get it do they?

I'd take the ten per cent compounded capital growth that is £200,000 capital gain on the average joe three bed house in Oxford - who cares about £7200 rental income from the £40k house - interest will wipe that down to £5k then wear and tear and you are left with £4500.

Meanwhile if you had five places in Oxford you would be a millionaire from the capital gain.

And to put it into perspective a £250k house nine years ago would have only needed a £35k deposit so could have invested £150k and had a million pound capital growth in under ten years.


The yield on a property reflects the capital growth and the state of the local market.