Is renting when self employed a problem?

by Readers Question

8:13 AM, 24th June 2014
About 7 years ago

Is renting when self employed a problem?

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Is renting when self employed a problem?

I currently have a one bedroom maisonette in Peterborough which I own outright and I was hoping to start a property portfolio, but due to being made redundant again recently, I have no option but to sell it and then rent. I could do with more rooms anyway, so it’s not all negative 🙂 Is renting when self employed a problem

I have decided to go back to being self employed (as a sales/marketing consultant) and just wondered would it be a problem to rent?

Provided I can sell quickly, I’d be able to rent fairly quickly too and I’d be cash rich so could give say, 6 months rent upfront. Would this be advisable/acceptable. Also, what are the chances of seliing my maisonette to someone who could also rent a house to me?

Sorry if these are daft questions but I’ve lived in my own place for 27 years and have never rented.

Many thanks

Eddie

Comments

Eddie Edwards

17:54 PM, 30th June 2014
About 7 years ago

Thank you for all the great feedback. I thought it would be good to give an update.

To those who say about my current mortgage, if you read my original post you will see that I say 'own outright'. i.e. I have no mortgage on the property.

I need to move to have more space and could do with an injection of cash for a new business venture hence the need to sell.

Further to Vanessa's comment, I have contacted a mortgage advisor about getting a BTL mortgage and should know more later this week. I don't have much 'guaranteed' income (maybe £15k between my girlfriend and I), however I would only need a 50% BTL and the rental to interest would be over 300% so they may work in my favour.

As I see it now, I have 3 choices:

BTL
Sell via estate agent at market value (£65k)
Sell to investor at less than market value (£50k)

Any other ideas would be great.

Thank you 🙂

AllanW

18:24 PM, 30th June 2014
About 7 years ago

Hi there Eddie,
How would this suite you? I buy your house at full market value with some (say 50%) of the funds immediately so that you can get going and the remaining funds delayed slightly.
No need to pay estate agents and I can supply all the paperwork.
If this is of interest to you, ask an editor for my email address. Allan Wadsworth

Rob

22:38 PM, 30th June 2014
About 7 years ago

Allan why dont you pay him 100% of the money immediately?? Who in there right mind would complete the purchase with "ill give you 50% of the money now and ill owe you the other 50%" I cant imagine there is a solicitor on this planet that would reccomend that, apart from yours obviously!

Mandy Thomson

15:44 PM, 2nd July 2014
About 7 years ago

@Eddie - The Bank of England (BoE) is looking into extending lending restrictions to BTL - under the proposals, this would mean lending amount limited to 4.5 x income from this autumn: http://www.cityam.com/1404260766/bank-england-sets-its-sights-landlords-loans

DC

23:12 PM, 2nd July 2014
About 7 years ago

Reply to the comment left by "Mandy Thomson" at "02/07/2014 - 15:44":

Hi Mandy, I don't think this loosely written article actually says that. In fact it doesn't really say much at all if you dissect it.

Looking at the FT blog of the B of E financial stability report of last week it verifies what we already knew, that the BTL market will be stress tested by looking at certain high street BTL lenders.

Hopefully, as BTL mortgage approval generally doesn't rely solely on landlord income but is more reliant on loan cover i.e. the rental income for the property in question, the lending criteria already has a robust calculator in place.

As many career landlords derive their income from rents and legitimately carry over annual business losses to offset against tax they often show a much lower income on paper than their bank accounts actually do. It's the self assessment return form that a lender would need to see so in these circumstances a 4.5 x income hurdle could prevent many landlords from obtaining (re)mortgages and thus this could cause an under supply of rental properties on the market. Lack of rental supply would then have the inevitable effect of raising rental costs and causing inflation within that market.

I'm fairly confident Mark Carney is well aware of the importance of the PRS and how it differs from residential mortgage market requirements, in fact Andrew Bailey said as much when questioned about this, “The buy to let market is the rental market and so the dynamics are different..." Although he did go on to add "...We will also continue our supervisory oversight of the housing market as a whole and that will include the buy to let market.”

Hopefully common sense will prevail!

Mandy Thomson

7:45 AM, 3rd July 2014
About 7 years ago

Thanks for this, DC - I only had time to scan the article myself, but I did note that it states "could be" - and as you say, we'd expect the BoE to be a bit more savvy than to introduce a measure that would all but choke off BTL. 4.5 x times income wouldn't be SO unreasonable if income was measured as GROSS income - before mortgages, losses etc - but as you've pointed out, that isn't how rental income is usually measured. This would take us back to what the EU wanted, and the government fought against.

Having said this, though, there are so many negative forces working against BTL landlords at the moment that the cynic in me wouldn't be THAT surprised, and with that in mind, Eddie might be advised to apply for his BTL mortgage sooner rather than later...

DC

11:20 AM, 3rd July 2014
About 7 years ago

Reply to the comment left by "Mandy Thomson" at "03/07/2014 - 07:45":

I agree that Eddie, or anyone in a similar position, should make hay whilst the sun shines because none of us know what is around the next corner in terms of controls on new landlords coming in to BTL investment. They could be the next target where financial restraints may discourage new investors rather than on existing investors that have contingency plans in place?

Mandy Thomson

12:34 PM, 3rd July 2014
About 7 years ago

...And possible controls and contingencies against existing ones too! For example, we've got more and more councils now jumping on the selective licensing bandwagon, especially since the recent local elections (Croydon and Brighton at least so far, no doubt more soon). While the current government doesn't approve, when there is so much anti landlord resentment around, are they REALLY going to risk losing votes in next years general election by reigning in local authority abuse of a law designed to help tenants?

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