Reader working hard on building a property business

Reader working hard on building a property business

11:23 AM, 13th November 2014, About 10 years ago 4

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I am 30 years old and looking to lay the foundations now to better myself in years to come. I currently own a house that I am renovating and when finished will be worth roughly £210k. I owe £80k on the mortgage.

I bought my first house back in 2009 for £94k with a mortgage of £70.5k and this is now my third house that I have renovated all of which I have sold for a profit and have gradually been in better areas. Up until a year ago I lived with lodgers in my second house and rented 3 rooms out.

This was great as I have a pretty low basic wage (£20k) and the extra cash coming in was very nice. I then sold that house for a very good profit (which included a bit of an increase in house prices) and bought the next doeer upper.

Ideally once I have finished my current project I would like to buy two properties one to live in and one to rent as a HMO. They would both have to be at the lower end of the market where I live as I doubt I would be able to afford anything more. My dilemma is that as I am on a low wage nobody wants to lend me enough to do this even though I have a good amount of equity for my age.

Cheap 3 bed terraces in my area typically go for £120-£130k and average room rental is £350/month. So for the HMO I would be aiming to rent out 4 rooms bringing in roughly £1400/month. This would basically double my cash flow per month. What would you do next?

I have to stick with my current mortgage until may 2016 unless I wish to pay a hefty early repayment charge. My idea was to buy a property for say £130k, port the current mortgage meaning I put down £50k deposit and still owe the £80k mortgage. Then put about £15k into renovating it aiming for a post renovation value of roughly £155/£160. I would then ideally re-mortgage this property and take out as much as I could. My wage may be a limiting factor here. This should then hopefully leave me with enough equity to buy another one outright to rent out???

Any advise or other ideas people my have would be greatly appreciated!


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Neil Patterson

11:36 AM, 13th November 2014, About 10 years ago

Hi Sam,

With regards to your income dilemma this will have most effect under the new MMR rules on the property you buy as your main residence as your income and your personal expenditure has to cover the mortgage payments plus some margin for error.

BTL criteria does include a minimum income, but the amount you can borrow is based on the rental income. This is known as stress testing among other names. An example of how this works is that the monthly rental income has to be 125% of the monthly interest payments. Often with a minimum interest figure of 5%.

Therefore as an example for every pound of rent pcm you can borrow a total of £192. Lenders all use a range of calculation though.

With your equity and a new BTL loan you are probably best (and more tax efficient) to borrow as much as you can on BTL leaving as little as possible on the main residence mortgage to be covered by your income.

However I am now straying into the realms of regulated advice as a residential mortgage is regulated by the FCA, but a BTL is considered a commercial loan and not.

If your existing mortgage is portable you may still be able to keep the rate and amount you have already, but request additional funds on a separate product.

If you would like me to get you some fully qualified advice just email me on

Mark Alexander - Founder of Property118

15:55 PM, 13th November 2014, About 10 years ago

Hi Sam

I can't help wondering whether it might be worth you biting the bullet in terms of those early prepayment charges.

Have you considered the lost opportunity costs, in terms of rental profits and possible capital gains, of waiting to buy your first HMO?

Have you considered selling your home, paying the ERC and renting somewhere for a while ............ then using your equity to buy two of three HMO's?

If I was you I'd be spending some time with a pencil, paper and calculator working all this out.

If you are looking for an experienced mentor to work one to one with you and to challenge you thinking please see >>

sam smith

17:30 PM, 13th November 2014, About 10 years ago

Thank you both for your quick replies.

I was originally contemplating what Neil is suggesting by borrow as much as I can on BTL leaving as little as possible on the main residence mortgage to be covered by my income.

However Mark i can also see the attraction of your idea too! This is exactly the reason i posted to this forum to get back different ideas like this!

I suppose Mark the only thing holding me back from doing what you suggest is me being a little cautious of getting myself to over burdened. Going with your idea I suppose even if i didnt want to rent i could buy a cheap place and put down only 25% deposit and use the rest of my equity to buy two or maybe even three HMO's. I will be spending the next few days working through sums to see what looks best! Thanks.

Howard Reuben Cert CII (MP) CeRER

17:32 PM, 13th November 2014, About 10 years ago

Apart from the income level, HMO's as a first venture in to BTL will also cause an issue for most lenders too, I'm afraid. HMO properties / mortgage products are deemed as complex arrangements and many lenders require a borrower to have some years of BTL experience before they would lend on an HMO property. Take Paragon for example, they will not provide funds for an HMO property unless the borrower has completed 3 years (provable) BTL / landlord experience first.

There are some good lenders out there that could help, but a good Broker should be the first port of call.


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