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Our property investment expert is Jeni Browne, Sales Director at
Mortgages for Business
www.mortgagesforbusiness.co.uk
Tel: 0345 345 6788
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Question
Holiday-let plan – will it work?
I have been following the rise of the holiday let market for the last year and have decided it’s time to invest in one. I don’t have anything in the way of substantial savings to put down as a deposit so I am hoping to use the equity from my home.
My wife and I own our home outright and I wondered whether we could take out a remortgage on this to pay for the holiday property.
Our house is worth £650,000. So, if we remortgage to the value of £250,000 we could buy the holiday let and use the income to make the repayments on the remortgage. Do you know we could borrow under these terms?
Answer
Holiday lets are certainly on the rise right now, so I think this is a great idea! Your plan of releasing equity in your own home through a remortgage is spot on.
However, the mortgage lender will determine whether it’s an affordable venture based on your income now, rather than what it will be with the holiday let. I believe, as a rough guide, you’ll need an income of c£70,000, depending on your age and other financial commitments.
Purchasing the holiday let outright and remortgaging your personal residence makes the most sense because the interest rates available will be cheaper than for a holiday let property.
If, for some reason, this isn’t possible, then you will still have the option of taking a holiday let mortgage on the new property. Good luck!
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Question
Learning more about yield
I am just starting to take a look at buy-to-let as a potential investment as retirement is not far off and I am keen to boost my income.
As someone extremely inexperienced I would appreciate some help in understanding how the potential yield of a property might impact my mortgage, and how I know whether I will achieve this yield.
Do local letting agents have ballpark figures for this information. Or do I need to find the property first, and then submit the yield to the potential lender. Sorry to sound so clueless!
Answer
Everyone has to start somewhere, and it sounds like you’re doing your research which is the most important thing!
The yield is the purchase price divided by the annual rent. A letting agent will tell you what a property’s potential monthly rental income will be, and from there, you can calculate the yield.
Buy-to-let lenders don’t use yield to determine whether they’ll mortgage a property. For them, the rental income is critical – it needs to cover the monthly mortgage interest payments plus extra to be deemed affordable (every lender has a slightly different way of calculating affordability, but that’s the general rule).
There are some calculators for this available online, or I’d recommend speaking to a broker who’ll be able to help you further. Good luck with your new venture!
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Question
Can buy-to-let help with funding?
I have come into a small inheritance of £17,000 and am looking at buying a house at auction. I am planning to renovate the house I buy and then rent it out once the project is complete.
I have no experience of building projects so will be getting professionals to do the job and I am therefore expecting to pay an additional amount on top of the value of the property. Is there a specialist mortgage which will help me do this?
I expect the work will take six months. Thanks for any advice.
Answer
The way you finance this purchase will depend upon the condition of the property. If it is ‘lettable’ in its current condition, you could take a traditional buy-to -et mortgage.
If it is not ‘lettable’, you would need to look at a refurbishment mortgage or bridging loan.
Your best option would be to speak to a mortgage broker who can run you through the various permutations of each option so that you can understand how your costs would look – this is key when taking on a refurb project as costs can quickly spiral out of control.
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Question
Getting a mortgage in principle
I am starting to look into investing in property and am looking at the private rental market with a view to buying with a buy-to-let mortgage.
I wondered if you knew how estate agents viewed potential landlords and whether I would need evidence – such as a mortgage in principle – to secure the deal?
Answer
Good for you – it’s a great place to be! Whilst there is no requirement to be armed with an Agreement/Mortgage in Principle (AIP/MIP) when making an offer on a property, it really does help.
The rationale here is that you will come across as someone who has taken the time to check you can secure a mortgage for the property and are therefore a serious and creditworthy enquiry.
Getting an AIP comes with no cost (my firm don’t charge for this, so I assume other brokers are the same) and does not commit you to anything.
Apart from the time filling in forms and a footprint on your credit file, there is no downside to you for doing this.
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