Updating post from Reddit.
Hi, I am a first time buyer at 40 years old. I am looking at a freehold property 250k-260k range.
If I put down £130k deposit would it be a bad or good idea to give it to a property agent where they guarantee my rent and they can sublet it out.
I do not need to live in the property and only buying it as its better than having the deposit money sitting in the bank eroded up by inflation and I don't want to miss the boat on ever owning a freehold property. I am already 40.
As long as the agents do the correct due diligence and checks finding a good tenant where is the risk? If they cannot find a tenant regardless for the empty property I will still get my rental money even if its below market value 30% approx. I do not know how little they offer to rent out properties in my area.
For me, the benefit is that my rent and mortgage is paid off each month thus lowering my principle LTV amount and if I lock in 4% on a 5 year with my lender My mortgage would be around £750 per month. I would be happy to receive £600 per month guaranteed rent and pay the difference from my own pocket. It means over time my mortgage is getting reduced.
I would be buying on a residential mortgage not a BTL mortgage.
So is this a bad or good idea? As I mentioned I do not not need to live in the house. It would be a 3 bedroom semi, I understand I would need to pay around £10k upfront before to get the correct certifications/safety checks and property to a standard to rent it out.
Thank you everyone.
If it’s a BTL you need a BTL mortgage. If you buy on residential for the FTB benefits you are defrauding the mortgage company and the government. That’s before you look at whether this actually works as an investment, which if you’re prepared to subsidise it with monthly cash suggests that it doesn’t.
Exactly this, it is mortgage fraud. Also from ops other posts it sounds likely that they will be jobless. No mortgage lender will lend residential without a job.
If op is serious about it then btl lenders might lend against the rental potential without a job but you need high deposit (which op has so that is covered).
Things to be aware of, rental market is crap for most landlords unless cash buyers as the policies and inflation has wiped out enough profits to make it a crap investment. You will also be throwing away FTB benefits. When you come to buy a property for yourself you will find it very hard due to affordability (as they take the btl mortgage into account lowering your affordability metrics for future properties) you will also be paying higher stamp duty on future home due to second home stamp duty unless you sell the rental.
Only op can make the choice but when most landlords on here are trying to advise not to get into it then there is clearly a sign not to get involved with btl.
That’s not entirely true. A BTL mortgage will go on the rental income and deposit rather than employment status. His job may well be landlord.
This is what I said?
The idea of getting a lodger as mentioned below is a good idea.
7.5k rent and the lucky lodger gets to live in my 3 bed house and have it most days of the week all to themselves.
I have seen rentals in London where "bills included" they specify WFH is not permitted.
If I take on a lodger is it simple to keep bills included for them and charge them more than 700 per month. I know that I would be taxed for this.
Lodger income cannot be used for mortgage application.
It is still true that if you're jobless you cannot get a residential mortgage.
I am looking actively for a new job and after 3 months do a mortgage application again to be ready. I am thinking where to put 130k, currently max out my ISAs and LISA and the remaining in my high street bank paying 3.5% interest. Thank you
Thank you so much for all the info, correct I am about to be let go from my current job. The only option is perhaps save and buy a small 2 bed for 180k cash buy no mortgage and try again renting it out.
Oh you can get btl mortgage without a job speak to a broker my advice would be to try not stretch yourself with borrowed money seeing as you have a nice deposit.
Why not just live there and take on a single lodger? Under the rent-a-room scheme you'd have £7500 per year tax free which would mean at £600pm you'd pay no tax on that rent.
Also no changes to the mortgage needed
I have to be flexible looking for work and be more closer to London, if I buy it would be 140 miles away from London.
Are you saying declare that it is my main residence as it would be even however physically I may not be there during the week, perhaps every weekend stay in my house then mon-fri it would be empty.
So take on a lodger? They would have the house to themselves. Is this a good thing?
Your idea is very interesting and has got me thinking as my letters and address would directed to this property as it would be my only home.
Thank you for the idea. Its a good idea you suggested, Keep it as my main residence as it will be anyway, just take on a lodger and dont charge them any more than £7.5 k a year on rent.
Question is how do I find a reliable lodger or do I use an agency? Thank you.
It needs to be your main residence. Your bills need to go there, electoral register and everything.
Whether you are there much or not is your business. I have a friend who rents his second bedroom but he spends 5-6 days a week at his girlfriends place. The lodger is smitten because he pretty much has his own flat.
Bear in mind once you factor in bills (£40 Internet, £130 council tax, £130 gas and electric, water, etc) are you really going to make that much?
I think you can have two lodgers before you need additional licensing (depending on council). You said it's a three bed, maybe let out two rooms and keep the third for yourself. Maybe means you go over the £7500 allowance but it's still feasable.
You are wonderful, that is of great help for me. Thank you.
"It needs to be your main residence. Your bills need to go there, electoral register and everything."
Yes this property would be as it would be my first house ever owned.
"Bear in mind once you factor in bills (£40 Internet, £130 council tax, £130 gas and electric, water, etc) are you really going to make that much?"
Good points, and if they work from home they would consume more electricity and internet. How do I navigate around this. Charge them more than the 7500 per year? Plus if I stay during the weekend how do we separate electricity usage.
Yes it would be a 3 bed semi with driveway. Maybe as you said look into 2 lodgers, and get 2 x 7,500 per year from each lodger, this would cover all the bills and expenses for all 3 of us. Yes I would have to pay tax but at least I earn 15k then minus running costs.
When you are vetting people maybe look for those who work in an office or maybe work from home two days a week.
If you had two tenants at £600 (total £1200 per month or £14400 per year) you would have a tax free amount of £7500 and you would pay tax on the remaining at your current tax level. You would need to fill out a HMRC Self Assessment each year.
Typically bills are included. You pay for the lot.
You cannot deduct running costs when using the rent a room scheme. It is not like renting out a whole house, it's having a few lodgers in your own house.
Edit: to be clear you get ONE allowance of £7500 total. Not one tax free allowance per lodger.
£600 month rent is taxable income. You will have to pay tax on it BEFORE you can pay the mortgage. Your net income may be significantly lower.
Thank you, someone above suggested just get a lodger, 7.5k per year tax free. This is a good idea. They would be a lucky lodger as mon-fri I would not be in the house depending where my next job would be so they get the house to themselves.
That much equity into a property defeats the purpose of BTL and ROI. You put the least amount of equity in and run an interest only mortgage to get the full benefit of returns.
Interesting, so If I see a house for 240k what would you suggest I deposit? And how much would interest only for a FTB be? Bearing in mind I am 40.
Hopefully the 240k house would appreciate in time to clear off the loan.
You would put the bare minimum. A residential could be down to 5%-10% a BTL will be higher minimum. Of course you need to be truthful to the mortgage company on what you plan to do with the property.
If you put down 25k your interest only mortgage will be around £850. You need the rent to cover this and more. If it does great if it doesn’t then it’s a bad BTL investment.
You’d need permission from your mortgage lender. I believe not doing so would be illegal.
It’s mortgage fraud and insurance fraud, as you’d need landlords insurance. You could be looking at prison time for doing something like this (though more likely a suspended sentence).
If you’re desperate to buy somewhere to rent out just get a BTL mortgage. Or if you’re worried about inflation why isn’t the money invested?
And then income tax comes before mortgage. So you’d be paying £750/month mortgage and getting £360/month rent after tax if you’re a 40% tax payer
Thank you for your comment.
I dont know much about investing and I always like to try play it safe to my determent it seems.
Someone above suggested just get a lodger and charge them 12 months 7,500 per year. They can have the entire 3 bed house to themselves mon-fri as I will be physically moving near London if I can find another job.
At least the lodger would cover my mortgage or most of it. And I do not have to pay tax.
The lodger is supposed to be renting part of your main residence. I’m not completely sure this idea would work if you’re not there at least 4-5 days a week as it still sounds like tax fraud.
You’ve mentioned in another comment you’d be buying 140 miles away - why? Family? You’ll be spending a lot of money on contractors to repair/investigate minor issues if you aren’t located near your property.
Just put the deposit towards somewhere for yourself in/around London? £130k is enough of a deposit to buy a 1 bed flat on a minimum wage salary in London, you’d easily get a £120k mortgage giving a budget of £250k.
Hi, thank you,
It would be my main residence, this is a grey area. While I am job searching I will have to move and look at different cities London being the obvious.
140 Miles away as this is where my family is. I know the areas and can drive up in 2.5 hours.
I am scared of buying a flat because of the lease and service charge scams I keep hearing, I would only be at peace with a freehold and this is not likely in the M25.
Yes you need a BTL mortgage and lenders generally require you to use AST agreements, they don’t like company lets as they can be more difficult to get out of if the lender has to repossess the property. You need to do more detailed research, your priority should be buying a place to live in before you consider BTL.
Good points you make, thank you
Sounds to me like you need to research investing in REITS, spread the money wisely, and reap pretty much the same benefits with two plusses. 1. You don't need to manage it or find management 2. You can sell at any time. If you haven't filled your isa, you could also open an s&s isa and add 20k now and 20k next month tax-free as a starter.
Hi, I have filled my LISA this tax year and my ISA.
Thank you for the suggestion. Where is a good place to learn about REITS? Do you have any non biased resource to share with me. Thank you.
> I would be buying on a residential mortgage not a BTL mortgage.
Fraud Act 2006 – Offenders can face up to 10 years in prison, fines, or both.
Opps, thank you for letting me know. I never knew that.
> guarantee my rent and they can sublet it out
No.