Must own 2nd house for BTL acceptance

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    Must own 2nd house for BTL acceptance

    Hi everyone, I'm new here.

    I have a plan and I'm worried there might be a flaw in it. I don't own any property right now and never have. I am planning on buying my first property worth £200,000 in the next two months with a regular residential mortgage and I want to live in it for about a year. After that time I will be moving away from this city where I'm buying this house, so I will be looking to turn it into a rental property (HMO) and I will need a BTL mortgage for that. This is where the possible flaw might be: I know that one of the requirements for a BTL mortgage is to own another property and my plan is to buy a house/flat up north for around £20,000 for cash (yes, they're that cheap up there). That way that condition is met, or is it?

    I guess my question is: is such low value of around £20k of this house something that the lender will be taking into account when assessing whether to accept a BTL application for this £200,000 HMO house? Why do they need the applicant to own a 2nd house? Is it because they want to use it as collateral in which case £20k value isn't really any good? Or is it just to show that you're not renting yourself and you have somewhere else to live?

    All the other conditions including minimum income of £25,000 are not a problem.

    Thanks

    Rachel

    #2
    Whilst there are others on the forum who are closer to the financing side of things, I would have thought any broker would be able to sort a mortgage without having a personal property. And if you do have a £20k house (sidenote, how realistic is this really?), so much the better. I've never heard of a house being considered "too cheap" in this regard

    But my first thought is why you'd want the vertical learning curve of a HMO as your first BTL, in a remote location no less. As its written, this sounds a bad idea

    Comment


      #3
      "my plan is to buy a house/flat up north for around £20,000 for cash (yes, they're that cheap up there)"
      well I am up in't north lad and even in't area up t'road which is as rough as a robbers dog there's nowt for 20k. 60/70 mebbe...
      Unshackled by the chains of idle vanity, A modest manatee, that's me

      Comment


        #4
        It was the case in the past to have a personal property in order to get a BTL mortgage, but it has changed now, would suggest you speak to a broker and explain your situation and long term goals so they find you a lender who has both a residential and a BTL so the switch can be made easily.

        I would also factor in the time to convert the property into a HMO, obtaining the required licence etc, and some lenders may not provide it for a first timer HMO owner etc.

        Comment


          #5
          The flaw in your plan is less likely to be the absence of another property, it's going to be getting a mortgage on a new HMO for a new landlord.
          There aren't many lenders who'll take a punt like that and the LTV ratio is likely to be low.

          Most lenders will not want a mortgage to last 12 months, and there would almost certainly be penalties for early redemption.
          When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
          Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

          Comment


            #6
            In the circumstances (Covid, Brex**it) I'd simply buy with ordinary residential mortgage having asked brokers which lenders are sympathetic to consent to let or change to BTL. Who knows how things will be in 12 months.
            I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

            Comment


              #7
              Subject to your lender accepting the legitimacy of your intended move after such a short period of time as a First Time Buyer, they might grant you a “ Consent to Let” for a specific period of time, much however depends on your residential lender. If this proves good then normally the structure of the loan remains as a Capital & Interest Mortgage unlike a conventional BtL which normally is placed on an Interest Only basis.
              If however the lender won’t grant a Consentto Let then the likes of BM Solutions might be your legitimate option of changing the classification of the borrowing and if necessary allow it on an Interest Only basis.

              Comment


                #8
                Thanks for you replies, some interesting points raised that I haven't considered with the main one being that it's unlikely to get an HMO BTL mortgage as your first BTL mortgage. I've just done some research and yes that's definitely a massive issue. Therefore, change of plans and instead of renting out separate rooms, I will rent it out as a normal residential property (on a normal BTL mortgage) for 2 years and then, as an experienced landlady, I will get an HMO BTL. Also, it'll be easier to try and get a 'Consent to Let' if not wanting to rent it out as an HMO and that will of course be my first port of call before even thinking of applying for a brand new BTL - I just like to be prepared and I have to assume that such consent won't be approved, hence already looking at BTL mortgage options.

                Also, as for the reply which says that I might not even need to own that second property to get a BTL, if that's the case then I will put that cash into this £200k house to lower the LTV even more, but if I will need that 2nd property then that c. £20k purchase is on the the cards - once again, there are quite a few of those and you can check out the Durham area for those who didn't believe me first time round; I don't even care if it sits empty that c. £20k house, as I am not looking to generate cashflow, I just need to allocate my cash somewhere, which is also why the non-HMO rental isn't that massive of a blow to my plan, as all I want is for the mortgage for this £200,000 to be covered and a regular residential rent will easily do that even on a Repayment BTL mortgage if I wanted to start paying off the capital - of course cashflow would be a nice extra, hence the initial plan for HMO rental, but not a must.

                Thanks for your input!

                Rachel

                Comment


                  #9
                  You won’t get any capital appreciation by investing in the bargain basement of the property market in Durham and not worrying whether it remains empty suggests you haven’t seriously thought this through.
                  I acted for a client who foolhardilybtrusted a so called expert in property investment and acquired 6 low value properties in Durham, West Auckland each of which became the home of individuals who trashed them completely and it took three years before someone offered an ultra low price and my client was left wondering how he had been so stupid so whilst I applaud your intentions do reconsider your acquisition strategy.

                  Comment


                    #10
                    Don't buy any property for investment without checking which local area has a demand by professional renters with atleast 3 estate agents located on the High Street of your town.

                    Stay away from Burnley, Blackpool and Middlesborough unless you live there. Stay away from £20K houses as the street is not safe at night.

                    Comment


                      #11
                      Very sound advice from Gordon999 , whilst I fully recognise the levels of deprivation and certainly Covid19 has been very tough on even prudent individuals but the sad fact is that many areas can only be viewed negatively as social ghettos and by default will be in areas which carry a high dependency on those receiving housing benefits and contribute to the statistics of higher rental arrears.

                      Comment


                        #12
                        I have bought btl flats at below a third of the value of my own home but i still found it emotionally traumatic when tenants did bad things to places i had worked on.
                        i would hate to let a property that had been my own home. It would be hard to accept the inevitable damage from tenants and the reduction in capital value.

                        Comment


                          #13
                          Hi Rachel,

                          I hope my answer will give you more clarity.
                          Q: Can you get a buy to let mortgage as a first time buyer?
                          A: Yes you can. The main reason lenders want you to be a owner occupier is to mitigate the risk of back door residential, but if the property you are buying you can afford it with your current income their are plenty of lenders who would do BTL mortgage Barclays being one.

                          Comment


                            #14
                            Welcome

                            I am pretty new here too and into the property world so can only speak from my own (few) experiences.

                            Is this first property you're buying help-to-buy free? If so check you T&Cs in the mortgage agreement. Myself and my Fiancée managed to rent her property out as we lived in mine as she had 'consent to let' in her mortgage agreement. Last year we sold my property to buy a new one together, we then plan to get a proper buy-to-let mortgage together when we re mortgage her property. Also I believe to get a buy-to-let mortgage you can only borrow up to 75% value of the property meaning you need 25% equity, someone will correct me if I'm wrong. Can you tell it's not me who deals with the paperwork and money side of things? just have to do all the heavy work haha!

                            Comment

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