Borrowing against home for Buy to Let

[sattyb]

Hi,

Just doing some "man maths". Currently have a mortgage on my house (around 18-20% LTV).
I've been thinking of purchasing a Buy to Let property worth around £180-£200k. I am aware of the extra SDLT I would have to pay but was considering borrowing around £50k against my current house to cover the deposit for the BTL.

The rental income from the BTL would easily cover the repayment of the extra borrowing and the BTL mortgage. However, I'm currently in a fixed term with my current lender with regards to the mortgage on my current house. I know I could call them up to discuss but is there anything obvious I am missing as to how to approach this or another way to do this?

Thanks in advance.

[Mr Whippy]

I assume your mortgage would go up, and then you'd have another mortgage to pay each month too.

https://www.thisismoney.co.uk/money/buytolet/artic...


I wonder what the appetite for risk at lenders currently is.

Stamp duty elevated prices. Temporary?
Covid19?
Interest rates nudging up?


If they lend then that's positive news for prices going higher!

[sattyb]

Thanks for the quick reply. Yes, I would in effect have a larger mortgage but the increase would be easily be covered by the rental income from the BTL as will the repayments on the BTL mortgage. I would be relying on the BTL increasing in value in say 8-10 years in order to make money out of it.
But I can't help but wonder if there is another way around this.

[Mr Pointy]

Surely you're just going to exceed the maximum lending ratio as the BTL rent is having to cover not only the maximum amount your lender wants to front up but also the deposit which you aren't telling them about?

[CharlesElliott]

And don't forget you will be taxed on the BTL income as the relevant rate, and can no longer offset interest costs against it.

[Register1]

We have a rather nice house, £400k, no mortgage.
We have two schools of thought, for when we go back to china to live, long term.
Rent this single house out for say £2000 a month.
Or sell it, and buy 4 cheaper £100k houses, and rent them out at say £550 a month.

All eggs in one basket, and all that stuff, etc.

What to do ?

Maybe 3 houses at £130k ?

[Mr Whippy]

Register1 said:

We have a rather nice house, £400k, no mortgage.
We have two schools of thought, for when we go back to china to live, long term.
Rent this single house out for say £2000 a month.
Or sell it, and buy 4 cheaper £100k houses, and rent them out at say £550 a month.

All eggs in one basket, and all that stuff, etc.

What to do ?

Maybe 3 houses at £130k ?

Or two at £200k

You’re planning on going back to China long term but leaving illiquid assets in the UK?

I’m not exactly the most optimistic person, but China tensions aren’t going to ease from here on in.
Expect punitive economic tit for tat, at best, in the long term.

Definitely one for a china and uk tax professional.

[Sarnie]

sattyb said:

Hi,

Just doing some "man maths". Currently have a mortgage on my house (around 18-20% LTV).
I've been thinking of purchasing a Buy to Let property worth around £180-£200k. I am aware of the extra SDLT I would have to pay but was considering borrowing around £50k against my current house to cover the deposit for the BTL.

The rental income from the BTL would easily cover the repayment of the extra borrowing and the BTL mortgage. However, I'm currently in a fixed term with my current lender with regards to the mortgage on my current house. I know I could call them up to discuss but is there anything obvious I am missing as to how to approach this or another way to do this?

Thanks in advance.

You just need to take a further advance from your current lender.............

[sattyb]

Mr Pointy said:

Surely you're just going to exceed the maximum lending ratio as the BTL rent is having to cover not only the maximum amount your lender wants to front up but also the deposit which you aren't telling them about?

So, to put things into context, and please excuse my naivety. My current mortgage would go up by around £400 per month. The BTL mortgage would be around £220 per month. The rent from the BTL would be around £825 per month.

So, total monthly BTL income would be around £825 minus the total mortage outgoings of around £620 (the increase of £400 monthly mortgage repayments on my current house and £220 monthly BTL repayments). This still leaves around £205 per month "profit" if you will.

[sattyb]

Sarnie said:

sattyb said:

Hi,

Just doing some "man maths". Currently have a mortgage on my house (around 18-20% LTV).
I've been thinking of purchasing a Buy to Let property worth around £180-£200k. I am aware of the extra SDLT I would have to pay but was considering borrowing around £50k against my current house to cover the deposit for the BTL.

The rental income from the BTL would easily cover the repayment of the extra borrowing and the BTL mortgage. However, I'm currently in a fixed term with my current lender with regards to the mortgage on my current house. I know I could call them up to discuss but is there anything obvious I am missing as to how to approach this or another way to do this?

Thanks in advance.

You just need to take a further advance from your current lender.............

Thank you for your reply. Is this normally doable while still in a fixed term deal?

[AdamC28]

sattyb said:

So, to put things into context, and please excuse my naivety. My current mortgage would go up by around £400 per month. The BTL mortgage would be around £220 per month. The rent from the BTL would be around £825 per month.

So, total monthly BTL income would be around £825 minus the total mortage outgoings of around £620 (the increase of £400 monthly mortgage repayments on my current house and £220 monthly BTL repayments). This still leaves around £205 per month "profit" if you will.

Seems like you haven’t made any adjustments for tax, insurances etc.

[Sarnie]

sattyb said:

Thank you for your reply. Is this normally doable while still in a fixed term deal?

Usually yes.........you will end up with two accounts though, with differing end dates which can be pain as at any given point you will always be within a fixed rate with one of your accounts.....

[sattyb]

AdamC28 said:

sattyb said:

So, to put things into context, and please excuse my naivety. My current mortgage would go up by around £400 per month. The BTL mortgage would be around £220 per month. The rent from the BTL would be around £825 per month.

So, total monthly BTL income would be around £825 minus the total mortage outgoings of around £620 (the increase of £400 monthly mortgage repayments on my current house and £220 monthly BTL repayments). This still leaves around £205 per month "profit" if you will.

Seems like you haven’t made any adjustments for tax, insurances etc.

These are just worst case scenario figures if you will, hence the £205 "profit". The monthly expenses would come from this figure. I'm not looking at this as some form of monthly profit so this "cushion" can absorb these expenses. Obviously as the years progress I'm banking on the property increasing in value as that is where I would be taking money from it.

[Emeye]

I have no idea how the lenders calculate the risk, but the worse case scenario is you being unable to rent the property out or your tenant not paying. They seem more risk averse than they used to be.

[Sheepshanks]

sattyb said:

These are just worst case scenario figures if you will, hence the £205 "profit". The monthly expenses would come from this figure. I'm not looking at this as some form of monthly profit so this "cushion" can absorb these expenses. Obviously as the years progress I'm banking on the property increasing in value as that is where I would be taking money from it.

Unless you’ve some way of avoiding tax, even at 20% your ‘profit’ is going to be £40 not £200.

I know a few people who did this years ago with no thought of making money so they’d be able to help their kids get houses but the tax treatment was different then and it’s panned out well for them with rising prices.

[Angpozzuto]

I done the same thing a few years back, it will cover it's expenses if things go smoothly but if you're a high rate tax payer you could potentially lose a bit annually. The biggest risk with any BTL is being stuck with a tenant that doesn't pay

[sattyb]

Angpozzuto said:

I done the same thing a few years back, it will cover it's expenses if things go smoothly but if you're a high rate tax payer you could potentially lose a bit annually. The biggest risk with any BTL is being stuck with a tenant that doesn't pay

This is all I want it to do. Just cover the expenses. If I need to chip in a bit it's not a major thing. I can afford for it not to be rented for a few months. I'm not a high rate tax payer.

Thanks for everyone's insight and advice

[Aiminghigh123]

Emeye said:

I have no idea how the lenders calculate the risk, but the worse case scenario is you being unable to rent the property out or your tenant not paying. They seem more risk averse than they used to be.

I don’t know about that. My mate just remortgaged and wanted to take more money out to redo the garage. At first the broker said it probably wouldn’t be possible because house prices haven’t gone up. They got the house valued and the guy didn’t even go round due to COVID-19. He asked them what price they thought it was so my mate exaggerated quite a bit. They said well I will put it down but doubt it will come back as that. £150k more than anything on your street.

It came back as what my mate told them!!!! Even the broker couldn’t believe it. Kept the LTV in a better range and got the money out to do garage.

They do need to keep the money moving around the system!!

[Register1]

Mr Whippy said:

Register1 said:

We have a rather nice house, £400k, no mortgage.
We have two schools of thought, for when we go back to china to live, long term.
Rent this single house out for say £2000 a month.
Or sell it, and buy 4 cheaper £100k houses, and rent them out at say £550 a month.

All eggs in one basket, and all that stuff, etc.

What to do ?

Maybe 3 houses at £130k ?

Or two at £200k

You’re planning on going back to China long term but leaving illiquid assets in the UK?

I’m not exactly the most optimistic person, but China tensions aren’t going to ease from here on in.
Expect punitive economic tit for tat, at best, in the long term.

Definitely one for a china and uk tax professional.

.
Fortunately wife is young smart Chinese.
Employed as accountant, now F.C.
Having lived in China already for a number of years, China is my preferential retirement place.

Its a shame China gets so much bad press, very little of it justified, mostly instigated by USA.

[Mr Whippy]

sattyb said:

Thanks for the quick reply. Yes, I would in effect have a larger mortgage but the increase would be easily be covered by the rental income from the BTL as will the repayments on the BTL mortgage. I would be relying on the BTL increasing in value in say 8-10 years in order to make money out of it.
But I can't help but wonder if there is another way around this.

Well assuming history repeats then you can’t go too wrong.
Interest rates staying low and house prices going up.

If either changes then you’re stuck.

Personally I’d get my primary residence paid down and not risk it for a BTL, which in the very current climate is likely to be over-priced and under yielding.
You can then get a BTL in a few years when the outlook can be judged better, with preferential borrowing due to a cash deposit.