Remortgage, BTL or? Any advice

[SmartManDan]

I fancy moving to a bigger house so I setup an appointment with the bank to see what options they'd offer me and what I'd qualify for before I set a budget. During the conversation they asked if I'd ever thought of renting my place out and buying somewhere bigger for myself. Obviously they won't advise me on it so I'm off to find a decent IFA but thought I'd ask here in the meantime as I know we have some IFA's and Mortgage Advisors here.

The Bank did give me a mortgage in principal so that's all good. She did also show me figures for interest only mortgages saying I could remogage my existing place up to about 75% on interest only to raise deposit for new place and tax purposes, but that's the limit of my knowledge.

Here's my situation:
41 Years old, mortgage free in a house worth £160k (Valued 2 years ago), no dependants, no wife etc, live alone. No other debt. When the house was valued 2 years ago I also had them tell me rental value would be around £750 a month.

The bank will loan me about £230k based on my salary. I also have £15k savings which I could use for any fees but since this is also my rainy day fund I'd like to not spend it all. Houses that I like are about £250k so some more time to save.

Any advice or opinions? I have a pension but want to look after myself more for when I'm older (Perhaps retire a few years earlier than 67 years old) and in general just make sure I'm ok when I retire.

[coetzeeh]

Contact Sarnie on PH who will provide you with expert advice.

[Sarnie]

coetzeeh said:

Contact Sarnie on PH who will provide you with expert advice.

Thanks!

OP, high level figures would be a max LTB borrowing of circa 75% so around £120k.

To assess the rental requirement they would assess it like this;

£120,000 x Stress rate (Can be anything from 4.99% to 6.99%, but for this example I'll use 5.25%) of 5.25% = £6,300

£6,300 / 12 = £525pm

£525pm x 125% = £656.25pm minimum rental value required, so your £750pm rental figure is sufficient.

They will also assess your income and if you are above circa £30k you will be fine, which looking at what your bank has said they will lend you, I will assume you are

Hope that helps!

[SmartManDan]

Thanks Sarnie. The figures seem to work out ok. Lloyds (My bank and previous mortgage account) interest rates were not great but it was more a case of seeing if I was eligible.

Initually it was just going to be a case of getting a £100k mortgage, sell my place and buy my £250k house but now they've got me thinking about a BTL so need to think if it's worth it. Help!

[Claudia Skies]

SmartManDan said:

house worth £160k

rental value would be around £750 a month.

OK, so that's a gross rental return of 5.6%

Will you manage the letting yourself or have an agent look after it? An agent is likely to want 10% plus VAT and expenses.

Without an agent you would need to find a tenant, prepare a tenancy agreement, get the electrical certificates etc, have somebody hold the deposit, insure the house, deal with any repairs. The list goes on.

[SmartManDan]

I'd use an agent if I was going to BTL.

[cailean]

Actually LTB not BTL, sorry... more info here, and becoming more popular
http://www.telegraph.co.uk/finance/property/proper...

[Brite spark]

SmartManDan said:

Initually it was just going to be a case of getting a £100k mortgage, sell my place and buy my £250k house but now they've got me thinking about a BTL so need to think if it's worth it. Help!

Suggest a good few hours reading through landlord/tenant forums/mse to try and understand what you might be letting yourself in for. There's a lot of options, stress and a lot of pitfalls as well as potential profit

[SmartManDan]

cailean said:

Actually LTB not BTL, sorry... more info here, and becoming more popular
http://www.telegraph.co.uk/finance/property/proper...

Ahh yes, thank's. Will give tha a read now.

Brite spark said:

Suggest a good few hours reading through landlord/tenant forums/mse to try and understand what you might be letting yourself in for. There's a lot of options, stress and a lot of pitfalls as well as potential profit

Thanks. I've been doing (and still doing) just that for the past few days, but because I don't know who's who on those forums, I don't know which opinions are worthwhile or valid, if you know what I mean. At least here I know the regular decent posters and can seperate them from the bull****ters.

[Welshbeef]

Firstly 41 and mortgage free - great result.

Secondly why do you want to buy a bigger pad? Is it just because or another reason?
Reality is you could save what you have been paying as a mortgage payment into pension/savings and easily be able to retire years early if that is your driver you can do it as is.

Lastly your single status could change at any point and you may then want to find a house together to buy and you'd have a bigger mortgage value to buy from with two salaries so more of a family home for kids too.

[SmartManDan]

Thanks Welshbeef. The reason for moving is a bit of both actually. I live in a terraced house, nice area etc, but I'd really like a detached house in the same town. Even one just 1/4 mile away. Still small enough (3 bed) for just me, just with bigger garden and of course, this being PH, a garage!

Although like you've quite rightly said, I could just save the money instead (Or buy a detached house for a reasonable amount and sell mine to move into and have a small mortgage)

So many decisions, so much reading ... Appreciate all the replies though, thanks.

[anonymous-user]

I'm in a similar boat, although with smaller values involved. My current place is only a flat, I owe about £20k on it, with about £30k in savings. The plan is to remortgage the flat, release about 70% of the equity and pay off the existing, use the balance and the savings to buy a new "famile" place, rent out the flat for a while and then sell a few years down the line when we want to upgrade again. (Although it's just a plan at the moment, I've had no official advice etc)

As i said, not the world's biggest figures, but got to make what you've got work for you as much as you can...

[Claudia Skies]

OpulentBob said:

I owe about £20k on it, with about £30k in savings.

There may be a good explanation, but how does that make sense? Here are some estimates:

• You're paying 3% to borrow the £20k. The cost to you is therefore £600 a year.

• You're getting 1.5% interest on the £30k of savings. That's interest of £450 a year, but you have to pay tax on that interest at, say, 20% which reduces the net amount to £360 a year.

As you can see, under your present arrangement you are losing around £240 a year.


Make sure you think through very carefully your new proposed arrangement. Don't forget,

• Only the house you actually live in is free from Capital Gains Tax.
• As you buy more expensive houses, Stamp Duty may need to be considered.
• You could end up heavily concentrated in one asset class - residential property. This contains risk in itself.
• Look at the tax breaks available to you by investing more in pensions and/or ISAs before you decide.

[anonymous-user]

Regardless of the numbers, there are often good reasons to keep hold of some liquid cash.

[anonymous-user]

Claudia Skies said:

There may be a good explanation, but how does that make sense?

Because my mortgage is the cheapest money I'll ever borrow. Because I've only had the £30k for a little while after some other investments, shares etc came good. Because I'm not a financial guru. Because I've never been in any way financially ambitious or even really thought about it (BTL'ing) til about 2 months ago. Because I'm worried I'll suddenly have a bill for several thousand pounds (like I did last year) and scraping around to find the cash made me ill. Other reasons too, such as not really having any knowledge or understanding of tax and capital gains and all that stuff. I'm an engineer, not a tax accountant!

But thanks for the answer, some good points to think about, even if I don't fully understand them!

[SmartManDan]

OpulentBob said:

Other reasons too, such as not really having any knowledge or understanding of tax and capital gains and all that stuff. I'm an engineer, not a tax accountant!

But thanks for the answer, some good points to think about, even if I don't fully understand them!

I'm with you there OpulentBob. Hence me asking for advice and being given options. Investigating them all as much as I can, before wasting an IFA's time with my million questions

[Claudia Skies]

OpulentBob said:

Because my mortgage is the cheapest money I'll ever borrow.

Your logic is absolutely right.

I once took a much took a much larger mortgage than I needed and used the surplus money to buy a fancy sportscar - that was one very cheap car loan! This logic only works if you have something to spend the "spare" cash on or to "invest" it in at a better rate of return (after tax).

[Claudia Skies]

As I mentioned in another thread the Moneyfacts website is quite a good place to have a DIY look at what rates and terms are available in the mortgage market.

http://moneyfacts.co.uk/mortgages/best-mortgage-de...