(Mortgage) Thinking about renting out property and extracting equity to buy another

[karla1962]

I’m currently selling my home without much luck. Selling as I want to leave London and move closer to parents. Should the house fail to sell I am considering letting it out and buying another but in order to do that, would you be able to help me with the following queries please:

A. If I was to do this, what is the value of the house the bank would use? My agent would be able to attest that the market value is 500k minimum. This is because we have done works to the property. Would the bank accept this? House bought for 415k

B. If so, could I extract the difference between 550,000 and the amount of capital I have put in the house already (about 40-50k), or would it be any capital I have put in so far?

C. My salary is also higher than when I got this original mortgage, so could I use the 4.5x multiplier on the difference to boost my buying power?

D. Just also wanted to confirm that the £5,000 car allowance I get can be used towards the multiplier as well?

E. Property would fetch rent of £2,250 per month, so would that be available to me to multiply as well?

Please also let me know of other things I may not have considered. I am aware of the tax issues.

 

[ryanjameskirby]

@karla1962 If you remortgage onto a buy to let mortgage, expect that you will need to have a minimum of 75% LTV - so if the house is worth £500k, you will need to have a minimum deposit of £112.5k. You would be able to extract anything up to that. The bank will perform it's own valuation when you apply for a buy to let product.

A buy to let mortgage will be based on the rentable value of the property, your salary will not be relevant for the rented property. You will be able to use your salary against the new property.

Your rental income may be considered for the new property, but likely only if there is evidence of it - and obviously the mortgage costs of the old property will be deducted.

Car allowance is typically counted as salary.

Be aware you will pay second property stamp duty on the second house.

 

[resjudicata]

@ryanjameskirby

Your rental income may be considered for the new property, but likely only if there is evidence of it - and obviously the mortgage costs of the old property will be deducted.

Not to mention its taxed OP!

 

[annemoon]

@karla1962 Why wouldn’t your house sell? London property in that range should sell, especially if you’ve had work done.

I think being a landlord using debt isn’t that great these days. You now pay income tax on rental income. Unlikely you’re doing this with a London property if you’re not a higher rate tax payer. Many people are leaving the BTL market because of this.

If you own the property outright, then the rental income is fine. If you are using debt you are paying high rates and have to make your profit from taxed income. If you do go this route, make sure you crunch the numbers fully.

 

[dgill]

@annemoon

Why wouldn’t your house sell?

Going by the other recently posted thread posted by the OP, because they've overpriced it.

 

[julia736]

@dgill OP needs to face realising the loss now, otherwise it could cost them a lot more in the longterm.

 

[slimshaky]

@karla1962 I considered doing pretty much this recently but it didn't make economic sense. I thought i could become a landlord by re-mortgaging my own house and buying another house outright with the capital. The difference it appears for you is that you will have 2 mortgages, one of which will be a BTL mortgage which currently the rates for aren't very good. Even with regular mortgage, I was getting quoted 5% even with 60% LTV against mortgaging my primary residence and after I accounted for the tax at 40% I would have to pay on the rental income, I would earn less from rent then I would pay in mortgage payments.

Yes your car allowance could be considered by the bank as part of your earnings. For the affordability assessment they will just consider all your earnings vs your expenditures. They would only consider the rental income once you can prove it. They aren't going take into account rent that you "might or might not earn".

But best thing to do is just call A bank. The call will take you 30 minutes and most of your questions will be answered.

 

[joshken]

@karla1962

the market value is 500k minimum

also,

I’m currently selling my home without much luck

I'm not sure the market value is really £500k based on those statements.

£27k annual rent on a £500k property is a gross yield of 5.4%, before costs like agency fees, insurance, mortgage interest, safety inspections, void periods and income tax. Is it really worth the work involved when you can get 5.2% in a high street savings account with zero risk?