have a flat that I currently rent out and it is on buy to let mortgage. I would now like to grow my portfolio and buy a couple of more properties to rent out. Questions is how do I finance this?
I have around £50,000 equity in the flat, am I right in thinking I use this equity to put down on a mortgage for the next property?
Just don’t understand how it works, as some people have portfolio of millions but surely their ‘salary x 4′ does not equal anywhere near this? For example – If my bank is already lending me £50,000 on a mortgage and the flat is now workth £100,000 and I not want to borrow another £100,000 but that will go way above my ‘salary x 4′ how can I get this mortgage? Am I totally missing something in the buy to let market and how to start? I have researched property websites and they don’t actually tend to tell you how to grow a portfolio in ‘idiots guide’ fashion in terms of the finance. I have asked the mortgage company but they have said we don’t give this type of advice. Any help would be much appreciated!
Thanks Ed….so if I am earning £600 pound a month in income from the rent….I can assume I claim a further £7,200 per year as salary and then add that to my day job wage and times that by four and see what the mortgage company would lend to me, plus the equity? Is that right? So by just having the flat I have now, I could top it up by £7,200 x 4 = £28,800?
Sorry to be a bit dim!
Thanks Ed….so if I am earning £600 pound a month in income from the rent….I can assume I claim a further £7,200 per year as salary and then add that to my day job wage and times that by four and see what the mortgage company would lend to me, plus the equity? Is that right? So by just having the flat I have now, I could top it up by £7,200 x 4 = £28,800?
Sorry to be a bit dim!
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Use the rental income from the first as a deposit on the second. Use income from the first 2 to make a deposit on the 3rd (twice as fast)
Get a specialist buy to let mortgage. Don’t forget rental income IS income.
The income from your current buy to let property and the potential income from the property you are buying will be added to your salary to get your borrowing multiples. You could only ‘use’ the equity in the existing flat if you remortgage.
For example. If you earn £25,000 then your borrowing limit is £100,000. If your flat brings in £6,000 a year in rent then this is another £24,000 and if the two flats that you want to buy would yield a total of £12,000 then that’s another £48,000 to add into the equation.
So a total of £172,000 allowance of which you are using £50,000, giving you £122,000 to utilise.
If this is not enough then consider remortgaging – most buy to lets will only allow 75% mortgages anyway so if the properties cost £100,000 each you will only be able to get a mortgage for £75,000 on each one.
I strongly recommend you see a specialist adviser.
I haven’t used one so can’t recommend but try googling for approved brokers.
If you speak to a good independant mortgage broker they may be able to look at refinancing your current property and arranging finance on two further ones at the same time. A good broker will sort you the best deal and it will be worth paying for their advice. You wouldn’t be able to get a second property based solely on the your rental income from the first one, any mortgage provider will need at least 10% deposit, with upwards of 20% being the preferred.
You hear a lot about “property millionaires” who apparently own a £1,000,000 worth of property … except they don’t, because they probably have mortgages of £900,000 on them! So they actually only own £100,000 worth of property. The other £900,000 is owned by the bank that lent them the money.
So where does the rental income go? Mostly straight to the bank, to pay the mortgages. So the landlord is effectively working for the bank!
This setup is a great idea when property prices are rising, because you can make a nice capital gain, but it’s a disaster when they’re falling. If house prices fall by 20%, our “millionaire” will be in big trouble, to the tune of £100,000 that he probably doesn’t have.
The alternative is to go not for capital gain but for income. If you buy a property outright (no mortgage), all the rental income comes to you. This is the way I do it. No big capital gains, but no big capital losses either. Just a nice steady monthly income, which will hopefully keep pace with average wages, and the satisfaction that you have no debts but actually own the property you let.
Debt is basically a bad thing, but if you listened to the banks you’d think it was a necessity of life. It’s a millstone around your neck.