buying a BTL on super-low interest rate?
Discussion
Back in May, a good friend of mine bought a small two-bedroom house as a BTL because of the super-low interest rates being offered since the Covid crazyness in March. Yesterday over a long-awaited beer chat he said I should do something similar
He broke down some of the details and I must say, he's a lot braver than me... although I kind of admire his opportunistic 'grab the bull by the horns approach', he took out a "small low-rate second mortgage" of £50k for the deposit on the £160k house
While it's very tempting, I'd rather wait another year to see where the housing market is and have a much stronger cash position to use as the deposit and then buy a similar sized property as a BTL, rather than take a small second-mortgage out for the deposit(!) - thoughts?
Another thing that concerns me is where will interest rates be when the economic dust settles. Historically during times of large Quantitative Easing and big inflation, central banks have been eventually forced to increase interest rates in an attempt to control big inflation (see 1979-1985 interest rates), I would hate to be in my friend's situation should that occur
He broke down some of the details and I must say, he's a lot braver than me... although I kind of admire his opportunistic 'grab the bull by the horns approach', he took out a "small low-rate second mortgage" of £50k for the deposit on the £160k house
While it's very tempting, I'd rather wait another year to see where the housing market is and have a much stronger cash position to use as the deposit and then buy a similar sized property as a BTL, rather than take a small second-mortgage out for the deposit(!) - thoughts?
Another thing that concerns me is where will interest rates be when the economic dust settles. Historically during times of large Quantitative Easing and big inflation, central banks have been eventually forced to increase interest rates in an attempt to control big inflation (see 1979-1985 interest rates), I would hate to be in my friend's situation should that occur
Mark V GTD said:
Maybe I'm not understanding you - but your friend didn't have any capital and took out a mortgage on the deposit for the hosue as well as the remaining £110k to buy it? I didn't think you could do that?
It's what a lot of people do........nothing wrong with it.With regards to the OP, as with most things, it's all down to your attitude to risk.
£50k at close to 1% is cheap, cheap money though!
Mark V GTD said:
Maybe I'm not understanding you - but your friend didn't have any capital and took out a mortgage on the deposit for the hosue as well as the remaining £110k to buy it? I didn't think you could do that?
Of course you can. I took a 130k mortgage on my home to finance BTL. The mortgage company were aware (it was the reason I gave).I then bought BTL properties that had their own BLT mortgages. The BTL mortgage companies don't care where the deposit comes from. They look at it as a business, so do you have a sufficient deposit, and do the rental payments cover the mortgage. They assess that at the valuation stage.
Sarnie said:
Mark V GTD said:
Maybe I'm not understanding you - but your friend didn't have any capital and took out a mortgage on the deposit for the hosue as well as the remaining £110k to buy it? I didn't think you could do that?
It's what a lot of people do........nothing wrong with it.With regards to the OP, as with most things, it's all down to your attitude to risk.
£50k at close to 1% is cheap, cheap money though!
I should caveat that I know next to nothing about BTL - apart from what it stands for. So me, as a current mortgage holder, could just go ahead and apply to do the same - ie: borrow all the money needed for a BTL purchase? Or is it the case that the OP's friend perhaps owns another house which is being used a security on the mortgages for the BTL house?
98elise said:
Mark V GTD said:
Maybe I'm not understanding you - but your friend didn't have any capital and took out a mortgage on the deposit for the hosue as well as the remaining £110k to buy it? I didn't think you could do that?
Of course you can. I took a 130k mortgage on my home to finance BTL. The mortgage company were aware (it was the reason I gave).I then bought BTL properties that had their own BLT mortgages. The BTL mortgage companies don't care where the deposit comes from. They look at it as a business, so do you have a sufficient deposit, and do the rental payments cover the mortgage. They assess that at the valuation stage.
Mark V GTD stop thinking about where the money comes from and just think of it like this. If you have 1 house and it is 50% paid off and 50% mortgage and it has a recent bank valuation of 400k then on paper you have 200k to your name. You can then choose to use that money to add another property for say 100k - to keep the maths simple - so that you will then have a parcel of property valued at 500k and you owe 300k or have a mortgage of 300k. You still have 200k to your name. Does that make sense?
A lender will assess if they are happy to take you on with all that in mind. If the numbers are tight they may want to know more about your income and this would include rent to be received. But if you have more than say 50% of the total value of all the property to your name they may not even care. Thats how it used to work a few years ago.
Mark V GTD said:
I should caveat that I know next to nothing about BTL - apart from what it stands for. So me, as a current mortgage holder, could just go ahead and apply to do the same - ie: borrow all the money needed for a BTL purchase? Or is it the case that the OP's friend perhaps owns another house which is being used a security on the mortgages for the BTL house?
You can borrow the deposit for the BTL from your own property............or you can borrow the whole amount to buy the BTL as cash if you prefer......this is pretty common.......Mark V GTD said:
I should caveat that I know next to nothing about BTL - apart from what it stands for. So me, as a current mortgage holder, could just go ahead and apply to do the same - ie: borrow all the money needed for a BTL purchase? Or is it the case that the OP's friend perhaps owns another house which is being used a security on the mortgages for the BTL house?
it depends how much you owe on your current property. If your current property is worth 2 million and you owe 500k then absolutely yes you can just add another BTL without putting any deposit down.Sarnie said:
TobyTR said:
What happens to the mortgages and interest rates when there's a housing market correction?
How long can you lock in under 1% for?
Two years.............or five years for under 1.50% to mitigate the risk if you prefer...........How long can you lock in under 1% for?
So what happens with the 100% mortgages if house prices drop and interest rates spike in 5 years?
So a friend is about to buy at 90% LTV for 2.3% 5 year or more fix.
I or someone else could borrow the full £290k at 1-1.5% (subject to financial good standing) and let it to him. Which I assume would allow Some margin
Ignoring the risks and politics, and what happens in a few years time. Is this possible.
I or someone else could borrow the full £290k at 1-1.5% (subject to financial good standing) and let it to him. Which I assume would allow Some margin
Ignoring the risks and politics, and what happens in a few years time. Is this possible.
TobyTR said:
What happens to the mortgages and interest rates when there's a housing market correction?
How long can you lock in under 1% for?
There are 10 year mortgages available or 7 too How long can you lock in under 1% for?
One of our BTL is a 5 year fixed currently. Clearly it’s more than 1% but then I’ve got a fixed max price for the time.
Sarnie said:
Mark V GTD said:
I should caveat that I know next to nothing about BTL - apart from what it stands for. So me, as a current mortgage holder, could just go ahead and apply to do the same - ie: borrow all the money needed for a BTL purchase? Or is it the case that the OP's friend perhaps owns another house which is being used a security on the mortgages for the BTL house?
You can borrow the deposit for the BTL from your own property............or you can borrow the whole amount to buy the BTL as cash if you prefer......this is pretty common.......Edited to say - yup, just checked - 1.29% BTL vs 2.24% residential!
Edited by S6PNJ on Sunday 2nd August 12:32
Sarnie said:
TobyTR said:
Ah okay, interesting. Thanks
So what happens with the 100% mortgages if house prices drop and interest rates spike in 5 years?
What 100% mortgages? So what happens with the 100% mortgages if house prices drop and interest rates spike in 5 years?
100% mortgages disappeared late 2008....................
what happens to all of that if/when interest rates spike in 5+ years and there's a housing market correction here within a couple of years? Negative equity on the home and BTL? Plus a potential interest rate 3x-6x higher than the original term?
Sorry, lots of questions. Just trying to understand the risk(s) in the current economic climate going forwards
TobyTR said:
The equity in his home being used up (which he used for the deposit on the BTL, plus the remaining BTL mortgage of £110k-ish) and therefore 100% mortgage'd up....
what happens to all of that if/when interest rates spike in 5+ years and there's a housing market correction here within a couple of years? Negative equity on the home and BTL? Plus a potential interest rate 3x-6x higher than the original term?
Sorry, lots of questions. Just trying to understand the risk(s) in the current economic climate going forwards
Nobody said he was 100% "mortgaged up"........he wouldn't be, as that's not been possible since 2008...............what happens to all of that if/when interest rates spike in 5+ years and there's a housing market correction here within a couple of years? Negative equity on the home and BTL? Plus a potential interest rate 3x-6x higher than the original term?
Sorry, lots of questions. Just trying to understand the risk(s) in the current economic climate going forwards
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