buying a house but not understanding mortgage options from bank Watch

ledleyking123
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I am wanting to buy a house saved up about 37k. I am planning on going to different banks and exploring the mortgage options but I don't have a clue about the process.

A mortgage is basically the other set of money the bank lends me minus my deposit right? As I am first time buyer, how do I go about repaying it. I am going to lend my house out so I wont be living there, just want to make a smart investment to get my money back.
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Rubenslash
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Try to get a mortgage with a fixed interest rate instead of a variable rate. The variable interest rates changes every 3-4 years according to the change in the interest rate on the market which is most likely going to rise in the future.
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member9876
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Thanks for that I am wondering whether I will actually make a profit with this investment
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flown_muse
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(Original post by ledleyking123)
I am wanting to buy a house saved up about 37k. I am planning on going to different banks and exploring the mortgage options but I don't have a clue about the process.

A mortgage is basically the other set of money the bank lends me minus my deposit right? As I am first time buyer, how do I go about repaying it. I am going to lend my house out so I wont be living there, just want to make a smart investment to get my money back.

Okay.

The ratio of deposit compared to house price is called the LTV, loan-to-value. If you have 37k deposit and the house was worth 100k, you would have a LTV of 63%. I.e. you are looking to borrow 63% of the value of the house. The lower this number, the better your chances.

If you are looking to rent your house out, this is called a BuyToLet mortgage, which attracts a higher interest rate, and requires a bigger deposit.

There is also an issue of how much a bank will lend you. Usually the ceiling on this is 5 times your salary, but dependent on other factors: income, income commitments (other loans, children etc), credit rating etc will vary this.

If you come back with more detail I can help you
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member9876
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Would it be better to not tell them you are looking to rent then and just say your going to live?
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balotelli12
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This is fraud
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kumori
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(Original post by balotelli12)
This is fraud
How is renting out a mortgaged house fraud?

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Quady
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(Original post by kumori)
How is renting out a mortgaged house fraud?

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The Ts&Cs of most mortgages have a clause to say it cannot be rented without prior position. Also its worth baring in mind any corrospondance the bank has with you will be sent to that address.

To the OP, you can do thaqt, but tbh you sounds pretty naive about the whole thing...

What is your current income?
How much will you need to borrow?
What interest rate do you expect to pay? (4.5%?)
Will you manage the property yourself or via an agent?
How much rent do you expect per month?
How many months per year do you expect the property to be empty?
How much do you expect to pay in house insurance? (proof will be required by the bank before they release funds for exchange of contracts)
How much do you expect to pay per year in upkeep of the house?
How much spare cash will you have to pay your own rent/mortgage/living costs as well as the mortgage ont he place to rent when it has no tenants?
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balotelli12
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(Original post by kumori)
How is renting out a mortgaged house fraud?

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A mortgage for a householder is conditional on it being occupied by the borrower. If you want to let it you need a buy to let mortgage. This will have a higher rate of interest.
Having been there and bought the T shirt all I would add to Qady good advice is have you factored in the insurance premium for non payment of rent. Can you afford it if your tenant stops paying rent? You can't just turn up and turf them out. It needs court action and this takes months. Can you afford the mortgage over that time with no income?
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thegaffer91
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(Original post by Rubenslash)
Try to get a mortgage with a fixed interest rate instead of a variable rate. The variable interest rates changes every 3-4 years according to the change in the interest rate on the market which is most likely going to rise in the future.
Fixed rates might not actually be the best option. Firstly, not many banks will offer a fixed rate over the entire term of the mortgage, they are often for a fixed period of time at the beginning of the loan (2-5 years are most common), after which you will either revert back to a variable rate or need to re-negotiate a new fixed term.

Secondly, fixed rates are based on the bank's expectations on future interest rate changes. If, for example, the bank assumes that the base rate will be 0.5% for a year and then 1.0% for a year, and their variable rate is base rate +1.5%, then they will offer a fixed rate of 2.25% over the two years. If the base rate stays at 0.5% for the two years you will actually be worse off taking the fixed interest rate compared to taking the variable rate.

I also just wanted to point out that variable rates will change whenever the base rate changes, which means it could remain unchanged for a period of five years, or it could change (both up or down) on a monthly basis.
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Quady
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(Original post by thegaffer91)
Fixed rates might not actually be the best option. Firstly, not many banks will offer a fixed rate over the entire term of the mortgage, they are often for a fixed period of time at the beginning of the loan (2-5 years are most common), after which you will either revert back to a variable rate or need to re-negotiate a new fixed term.

Secondly, fixed rates are based on the bank's expectations on future interest rate changes. If, for example, the bank assumes that the base rate will be 0.5% for a year and then 1.0% for a year, and their variable rate is base rate +1.5%, then they will offer a fixed rate of 2.25% over the two years. If the base rate stays at 0.5% for the two years you will actually be worse off taking the fixed interest rate compared to taking the variable rate.

I also just wanted to point out that variable rates will change whenever the base rate changes, which means it could remain unchanged for a period of five years, or it could change (both up or down) on a monthly basis.
Variable rates will change whenever, not just when base rate changes. What you've discribed is a tracker. If gilts/treasury yeilds spiked up to 10%, variable rates will follow, regardless of whether the base rate changes.
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balotelli12
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Further, variable rates are entirely at the whim of the lending institution.
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uberteknik
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Further to Quady ^

From your savings of 37K you will need to set aside costs for:

Lenders valuation (£200)
Mortgage arrangement fess varies but could be up to (£2000) and is either paid up front or added to your mortgage ad thus reducing the amount available to you from the lender by that amount.
Surveyors structural report (£750 - £1000)
Solicitors conveyancing and disbursements (say around £600)
Local authority search fees (£250)
Land registry fees (£200)
Stamp duty (1% of value fro properties between 125 - 250k) so £1500 on a 150k property.
Mortgage Indemnity Insurance (charged by lenders if the LTV is above 75%) this starts at 4% of the amount borrowed above the 75% threshold.
Buildings insurance. (£300 - £400) p.a.
Services connection fees (water, electric, gas etc.)

Depending on the value of the property you want to purchase, you will need to set aside around £4000+ (more if the house has a higher value) for all of these.
You will not get the keys until the bills are settled.

'White goods', basic minimum for btl: fridge/freezer, cooker, washing machine. Budget around £1200 - £1500 for these. These need to be safety certified as you will be liable for any injuries resulting from theor failure.
Decorating costs.

You also need to consider if the house wil be furnished or unfurnished and if the former, then you will need to decide how you are to pay for these. This could easily add another £1000+.

You will need to purchase a public liability and indemnity insurance which is an anual cost and covers you for legal actions your tenants may pursue for any disputes. (£150 -£200 p.a. for both)

So in reality, your £37k will cover you for a deposit of around £32-33k and that's only for the direct costs to purchase the property (i.e. excluding white goods, furnishings, decoration, appliance and services safety checks, indemnity insurances, management fees etc). Keeping below the 75% ltv threshold means you will have to purchase a property of £132k+ and given the current max earnings to mortgage ratio of 4x to 5x earnings (dependent on circumstance), you will need a minimum income of around £28k pa to qualify.

Factor in 5% of your rental income for maintenance, 10-15% for letting agents fees, let property contents insurance, and 5% p.a. for rent guarantee insurance (if your tenant defaults on payment).

From your gross rental income, you will therefore need to set aside 20-25% to cover these incurred rental costs, leaving you with 75% of the rental income to pay for the mortgage.

You will also need to inform the Inland Revenue as income from the property will be taxable (it's a business) and therefore your tax bill will go up. Failure to declare this is classed as tax evasion and carries stiff financial penaltoes and even jail.

When you eventually sell the property, because it is buy-to-let, you will have to pay 28% capital gains tax because this is not your main residence and is treated as a business.
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CEKTOP
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(Original post by balotelli12)
A mortgage for a householder is conditional on it being occupied by the borrower. If you want to let it you need a buy to let mortgage. This will have a higher rate of interest.
Having been there and bought the T shirt all I would add to Qady good advice is have you factored in the insurance premium for non payment of rent. Can you afford it if your tenant stops paying rent? You can't just turn up and turf them out. It needs court action and this takes months. Can you afford the mortgage over that time with no income?
Not every mortgage is, in fact, most mortgaged properties can be let.


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Quady
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(Original post by CEKTOP)
in fact, most mortgaged properties can be let.
Without advising the mortgage provider?
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Bathwiggle
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(Original post by CEKTOP)
Not every mortgage is, in fact, most mortgaged properties can be let.


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so long as you have consent to let, (they can charge you a large fee, or up the interest), or buy to let mortgage. If you don't tell them and they find out they can charge you a fine or withdraw the mortgage.


(Original post by ledleyking123)
As I am first time buyer, how do I go about repaying it. I am going to lend my house out so I wont be living there, just want to make a smart investment to get my money back.
there aren't many mortgage companies that seem happy to give FTB's a BTL mortgage, as my brother and sister both want to do this but can't get a mortgage
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balotelli12
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Also OP as of this week the Home Secretary has made landlords responsible for ensuring their tenants have the right to be in the UK legally, and landlords face large fines for non compliance.

Fancy that job? I wouldn't.
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member9876
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I do fancy that job. Its a massive investment and there's
No better investment these days.

Been to banks monthly repayment is about £600 so the rents will cover me with that the k you very much. Got another 5k saved to one side to take care of other things. Now I need to find the correct bank.
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LolaLowe
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gosh OP, without meaning to sound rude you don't seem to yet know very much about what you are undertaking here...get some professional advice because its worth the money and if you sign up to the wrong mortgage product you could come very unstuck- banks are very unforgiving in these matters and if you choose the wrong thing you could use a shockingly large chunk of £37k getting yourself out of it.
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balotelli12
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There's nothing like a know all.
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