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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
Converting buy-to-let to holiday let?
We own a property in a seaside town and we are currently letting it out to tenants. They have told us they will be leaving at the end of the April, so we are considering turning the property into a holiday let for the summer to see how it goes.
Can we continue with our buy-to-let mortgage (we’ll be two years into a five-year fixed deal when our tenants move) or will we need to change to a different mortgage?
Answer
Holiday lets are such a popular choice at the moment! You will need to speak to your current mortgage lender to see if they will allow you to let the property on this basis – most won’t, and your mortgage terms and conditions (T&Cs) will preclude this, but it’s worth asking the question.
If they say no, you would need to remortgage to a lender who allows holiday letting, which could be costly if you have to pay early repayment charges.
A mortgage broker can help you weigh up these costs and point you towards lenders who accept holiday letting if your current lender does not give you permission.
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Question
Creating a limited company with my wife
I am very seriously looking into turning my tiny buy-to-let empire – three properties at the moment – into a Limited Company. Please can you advise on what documents and info I’ll need to do this?
I would like my wife to be involved in the company too so she can receive the income – is this allowed and what do my wife and I need to provide in order to do this?
Thanks for your help.
Answer
So many of our clients are doing this now. My advice is always this: You really need to speak to a tax expert about this before you jump in, as there are costs that come with creating a limited company – capital gains tax and stamp duty being the big ones.
Assuming you have done this and are aware of the costs, then from a mortgage perspective, you will need to set up the company (your wife can certainly be involved as a shareholder and/or director).
Further documents would include the usual documentation one provides when applying for a mortgage – proof of your income, bank statements, proof of ID, and address.
I would encourage you to seek out a broker who specialises in these types of transactions, as they will be able to talk you through how it all works and the costs involved.
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Question
How to pay the mortgage when there’s no rent?
My boyfriend and I are looking for a buy-to-let as a way of investing some money. I am getting cold feet though as I am a little worried about what would happen if the tenants didn’t pay their rent and we were forced – through no fault of our own – to default on the mortgage?
Should we keep some of our deposit back as a safety net to pay? And, if so, how much is recommended? Obviously, we would like to put as much as we can into the deposit and I am wary that the ‘safety net’ money wouldn’t earn us any income if there’s not rent.
What do other landlords do? And what do lenders usually advise in this situation?
Answer
When a lender looks at how much you can borrow on a buy-to-let, they will always want the rental income from tenants to be greater than the mortgage payments for the landlord.
This way, you should be able to build up a slush fund that would cover you during rental voids. These are inevitable, but the important part is how long they will last.
I absolutely agree that keeping some capital back is a wise move – there is no set answer to how much, but most of our clients like to have between three and six months mortgage payment in reserve.
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Question
Expanding my portfolio – will this impact eligibility?
I have been investing in a property for over 10 years. I am no expert, but I have been slowly building a portfolio of sorts by buying homes in the North East of England (I’m based in South East London).
I now have three properties which are doing very well so I am now looking at buying a flat in my home town as a bit of a change and have been looking for mortgages.
However, I read on the internet that some lenders won’t accept applications from landlords with four properties. Is this true? If so, how do I sidestep this? I am assuming there is a way because so many landlords have huge portfolios!
Answer
This is definitely not true. I have clients with hundreds of properties, and they can obtain mortgages! The only difference is how lenders underwrite mortgages for ‘portfolio landlords’ (landlords with four or more distinct mortgaged buy-to-lets).
Lenders will consider the background portfolio to ensure that it is not mortgaged to the hilt and that the rent is covering the mortgage payments with money to spare each month.
They may also ask you to complete a cash flow forecast and business plan which sounds intense, but is generally a templated tick box form. Don’t worry, you will be fine – go for it!
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