Finacing a property purchase,( or 2 ), question.
Discussion
As you can see, this is my first post, but have been lurking for quite some time, and this certainly seems to be the place to get some "real world" answers, anyway here goes.
Have recently retired early, (52), due to personal circumstances, and as such have a much reduced pension, ( approx 15K per year ), also have 100K in cash, currently doing sweet FA in a bank account, apart from 15K in cash isa's, have about 55-60K, ( at current market value ), in shares in blue chip drugs company as well, but I would rather leave most of this where it is for now.
My question is, i want to buy a property, ( or 2 ), to rent out, to supplement my income, and give me a nest egg for the future, but I need to know the best way to go about financing this, do i buy cash and then purchase a second one with a mortgage using the first one as security, or do I put down a small deposit on each and mortgage them both, or do something completely different.
I might add that my partner is willing to join me in this venture, and can contribute a further 50K of savings just to try and get a better return on their money, they own a large house,which we currently live in,(500K), in full time employment, and have a very small mortgage left.
The properties we have been looking at are, 100K and 150K, both in different parts of the country, for reasons i won't go into for now.
I don't think I've left anything out, your thoughts please.
PS. I/we have thought about financial advisors, but that's as far as it got.
Have recently retired early, (52), due to personal circumstances, and as such have a much reduced pension, ( approx 15K per year ), also have 100K in cash, currently doing sweet FA in a bank account, apart from 15K in cash isa's, have about 55-60K, ( at current market value ), in shares in blue chip drugs company as well, but I would rather leave most of this where it is for now.
My question is, i want to buy a property, ( or 2 ), to rent out, to supplement my income, and give me a nest egg for the future, but I need to know the best way to go about financing this, do i buy cash and then purchase a second one with a mortgage using the first one as security, or do I put down a small deposit on each and mortgage them both, or do something completely different.
I might add that my partner is willing to join me in this venture, and can contribute a further 50K of savings just to try and get a better return on their money, they own a large house,which we currently live in,(500K), in full time employment, and have a very small mortgage left.
The properties we have been looking at are, 100K and 150K, both in different parts of the country, for reasons i won't go into for now.
I don't think I've left anything out, your thoughts please.
PS. I/we have thought about financial advisors, but that's as far as it got.
If the mortgage route is the best one then we can both be on there.
I know buy to let mortages are not as readily available as normal loans, nor as attractive, rate wise, so if we were to buy one property outright, could they, ( my partner ), then not re-mortgage their own property to finance another one, that way you could get a better deal, or am i missing something.
I know buy to let mortages are not as readily available as normal loans, nor as attractive, rate wise, so if we were to buy one property outright, could they, ( my partner ), then not re-mortgage their own property to finance another one, that way you could get a better deal, or am i missing something.
bailey1966 said:
...or am i missing something.
The interest on the BTL mortgage can be offset against the rental income for tax purposes.One point to watch - often it's assumed people want interest only BTL mortgages. If you want a repayment mortgage then make sure that's what you're looking at.
bailey1966 said:
If the mortgage route is the best one then we can both be on there.
I know buy to let mortages are not as readily available as normal loans, nor as attractive, rate wise, so if we were to buy one property outright, could they, ( my partner ), then not re-mortgage their own property to finance another one, that way you could get a better deal, or am i missing something.
30% + for a deposit should get you a better rate for an interest only mortgage.I know buy to let mortages are not as readily available as normal loans, nor as attractive, rate wise, so if we were to buy one property outright, could they, ( my partner ), then not re-mortgage their own property to finance another one, that way you could get a better deal, or am i missing something.
Depending on where you are in the Southwest, I can let you know of a good mortgage advisor who has set up many buy to let mortgages for people I know.
BTL's will as you have highlighted generally mean higher rates, a higher deposit requirement and the amount you can borrow will be based on a multiple of the rent that can be achieved from the property. For example the interest only cost must be covered by the rent 150% - from this you can work out what you can then borrow depending on the rate etc.
You and your partner have sufficient equity in your main residence to afford to purchase both of your target properties. As such there is nothing stopping you increasing/raising a mortgage against your main residence which you could then use to purchase your investment properties - however as your earnings/pension provide the main source of repayment you may well be limited as to what you can borrow as a multiple of income although your partners earnings may well be sufficient.
This however depends on your partner being willing to put the main residence up as equity.
If it was my personal situation then I would rather gear up on my main residence to raise the £250k to purchase the buy to lets outright. That way you can keep majority of your cash/share assets liquid as a fall back position should something disastrous happen.
Your other option is to take your £100k and your partners £50k and use this as a solid deposit and obtain 2x BTL mortgages totaling £150k. Assuming a BTL interest rate of say 5% then interest cost would be £7.5k. Assuming rental values of £400 pcm and £600pcm (this is guess work) you’ll be generating £12,000 of rental income per annum. £12k divided by £7.5k gives you interest cover of 160% which should be sufficient for the majority of BTL mortgages out there. However the downside is that most of your cash assets have been used and are now tied up in fairly illiquid investments.
You may well be able to eek out a higher BTL mortgage with less deposit thus leaving you to keep more of your cash to hand.
p.s. I’m not qualified to give professional advice on these matters and as such the above is purely considerations I would have for myself
You and your partner have sufficient equity in your main residence to afford to purchase both of your target properties. As such there is nothing stopping you increasing/raising a mortgage against your main residence which you could then use to purchase your investment properties - however as your earnings/pension provide the main source of repayment you may well be limited as to what you can borrow as a multiple of income although your partners earnings may well be sufficient.
This however depends on your partner being willing to put the main residence up as equity.
If it was my personal situation then I would rather gear up on my main residence to raise the £250k to purchase the buy to lets outright. That way you can keep majority of your cash/share assets liquid as a fall back position should something disastrous happen.
Your other option is to take your £100k and your partners £50k and use this as a solid deposit and obtain 2x BTL mortgages totaling £150k. Assuming a BTL interest rate of say 5% then interest cost would be £7.5k. Assuming rental values of £400 pcm and £600pcm (this is guess work) you’ll be generating £12,000 of rental income per annum. £12k divided by £7.5k gives you interest cover of 160% which should be sufficient for the majority of BTL mortgages out there. However the downside is that most of your cash assets have been used and are now tied up in fairly illiquid investments.
You may well be able to eek out a higher BTL mortgage with less deposit thus leaving you to keep more of your cash to hand.
p.s. I’m not qualified to give professional advice on these matters and as such the above is purely considerations I would have for myself
AndyParker said:
BTL's will as you have highlighted generally mean higher rates, a higher deposit requirement and the amount you can borrow will be based on a multiple of the rent that can be achieved from the property. For example the interest only cost must be covered by the rent 150% - from this you can work out what you can then borrow depending on the rate etc.
You and your partner have sufficient equity in your main residence to afford to purchase both of your target properties. As such there is nothing stopping you increasing/raising a mortgage against your main residence which you could then use to purchase your investment properties - however as your earnings/pension provide the main source of repayment you may well be limited as to what you can borrow as a multiple of income although your partners earnings may well be sufficient.
This however depends on your partner being willing to put the main residence up as equity.
If it was my personal situation then I would rather gear up on my main residence to raise the £250k to purchase the buy to lets outright. That way you can keep majority of your cash/share assets liquid as a fall back position should something disastrous happen.
You may well be able to eek out a higher BTL mortgage with less deposit thus leaving you to keep more of your cash to hand.
p.s. I’m not qualified to give professional advice on these matters and as such the above is purely considerations I would have for myself
No, no, no & noYou and your partner have sufficient equity in your main residence to afford to purchase both of your target properties. As such there is nothing stopping you increasing/raising a mortgage against your main residence which you could then use to purchase your investment properties - however as your earnings/pension provide the main source of repayment you may well be limited as to what you can borrow as a multiple of income although your partners earnings may well be sufficient.
This however depends on your partner being willing to put the main residence up as equity.
If it was my personal situation then I would rather gear up on my main residence to raise the £250k to purchase the buy to lets outright. That way you can keep majority of your cash/share assets liquid as a fall back position should something disastrous happen.
You may well be able to eek out a higher BTL mortgage with less deposit thus leaving you to keep more of your cash to hand.
p.s. I’m not qualified to give professional advice on these matters and as such the above is purely considerations I would have for myself
If something disastrous happens you lose your home!!
Interest cover is typically 120%, not 160%.
If you pay cash for the btl but have a mortgage on your main home, you pay interest on the capital element of the btl rent received e.g. All income received
Clear your personal mortgage before clearing a btl
Kudos said:
No, no, no & no
If something disastrous happens you lose your home!!
Interest cover is typically 120%, not 160%.
If you pay cash for the btl but have a mortgage on your main home, you pay interest on the capital element of the btl rent received e.g. All income received
Clear your personal mortgage before clearing a btl
Apologies but I did not say 160% was typical I merely stated this as an example. I know of a high street bank whose credit policy is 150% rent cover minimum (commercial property 175%) Most of the main stream lenders are not in 120% territory as a choice these days. It would pay to build in some additional head room of your own to rduce the risk so 160%+ is not unrealistic.If something disastrous happens you lose your home!!
Interest cover is typically 120%, not 160%.
If you pay cash for the btl but have a mortgage on your main home, you pay interest on the capital element of the btl rent received e.g. All income received
Clear your personal mortgage before clearing a btl
Agree with what you say about the main residence at risk but he will have 2 properties plus 150k cash in the background so there is a significant amount of safety and available cash and so it is unlikely the OP would end up homeless if the worst were to happen. It also gives him 150k cah as a contingency if he is left with a period of no tenants - whereas if he ties up all cash in the purchase he is not left with any contingency (I'm sure there is a half way house to be had).
Should also have said that IF he gears up against the main home he could likely get an offset mortgage in which his 150k of cash balances would cancel out a portion of the interest due on the mortgage - which would be a better rate of implied return that most bank account credit balances.
Also if they are borrowing a on BTL in their personal names then the bank would have personal recourse back to all of their assets in any case - albeit there would not be a specific charge over the main residence. Clearly this issue could be circumnavigated if the BTL's were done in a Ltd Co and borrowing taken in the Ltd Co but the bank may well then ask for a personal guarantee as back up in any case and there would be additional costs of maintaining a Ltd Co such as accountants fees etc.
The original OP asked if it was a feasible situation. It clearly is but the OP has to way up the pros and cons of both options which I clearly described could both be done in this scenario. There are obviously other considerations such as which is most tax efficient, legal standing in event of default, which has the greatest level of headroom and therefore safety but we could be here all day with that level of detail. e.g. BTL's on two properties will require two sets of legal costs and two valuation costs for starters.
The ultimate decision will come down to a detailed analysis of the costs (including tax implications), whether the OP has an interest in keeping back liquid assets as a saftey net/fallback position and what their tendancy for risk is.
Edited by AndyParker on Monday 28th November 08:33
AndyParker said:
could be circumnavigated if the BTL's were done in a Ltd Co and borrowing taken in the Ltd Co but the bank may well then ask for a personal guarantee as back up in any case and there would be additional costs of maintaining a Ltd Co such as accountants fees etc.
Fella, stop digging and leave the advice for the experts (of which I am certainly not one)Edited by AndyParker on Monday 28th November 08:33
bailey1966 said:
This is all getting a bit information overload for me, will have to sit down and take it all in, but can my partner re-mortgage the property using a normal mortgage and buy something to rent out, is this legal as it/they, won't be the main residence.
You can use any property you already own as collateral for borrowing to buy another property. It is not against the law. However, you may find it difficult in the current climate to find a willing lender.bailey1966 said:
This is all getting a bit information overload for me, will have to sit down and take it all in, but can my partner re-mortgage the property using a normal mortgage and buy something to rent out, is this legal as it/they, won't be the main residence.
The risk there is that if you're going to depend on rent from the BTL to pay the mortgage on your own house, then you could lose your own house if you fail to let the BTL.If you can cover your own mortgage anyway, then that's fine.
Eric Mc said:
You can use any property you already own as collateral for borrowing to buy another property. It is not against the law. However, you may find it difficult in the current climate to find a willing lender.
Provided your partner's income can support it then most lenders will allow you to release equity to allow a second property purchase, most go to 75% LTv, depending on the lender in question or the scheme they are offering. (So for instance a mortgage with a 65% limit will only allow to you to release 65% ltv. However, as pointed out your partner is securing debt against her home to buy, so if it all goes tits up (technical term) her home is at risk.
Most BTL lenders have a minimum income stipulation, and some will not lend to first time landlords.
Other will want to know that you own your own property as well as looking to BTL.
scotal said:
Provided your partner's income can support it then most lenders will allow you to release equity to allow a second property purchase, most go to 75% LTv, depending on the lender in question or the scheme they are offering. (So for instance a mortgage with a 65% limit will only allow to you to release 65% ltv.
However, as pointed out your partner is securing debt against her home to buy, so if it all goes tits up (technical term) her home is at risk.
Most BTL lenders have a minimum income stipulation, and some will not lend to first time landlords.
Other will want to know that you own your own property as well as looking to BTL.
I was replying purely to the OP's question as to whether it was legal or not - not other practical considerations.However, as pointed out your partner is securing debt against her home to buy, so if it all goes tits up (technical term) her home is at risk.
Most BTL lenders have a minimum income stipulation, and some will not lend to first time landlords.
Other will want to know that you own your own property as well as looking to BTL.
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