Buy-to-let instead of own home as first property investment...Clever or stupid Idea?

[pcalessio]

Hi everyone, 

I live in London and the rent I pay at the moment is much lower than the mortgage I would pay to buy the same kind of property here (like 40% cheaper). 
So, I'm thinking to invest my money in a buy-to-let somewhere else and keep renting in London.  

But I cannot find enough information online to understand if it's a good idea: 

Will lenders allow me to do buy-to-let as a first investment? 

Will I lose the the ability of using only the 10% deposit when I will buy my own house in the future? 
How will the Stamp Duty work? Will I pay less in the first buy-to-let and more in the future own home?  

 

Thanks in advance for any help! 
 

[Lilla D]

Hi there,

 

I'm a mortgage broker, so can offer some advice, although ultimately you'll have to talk to a broker in more detail to find the best solution for you. 

 

Will lenders allow me to do buy-to-let as a first investment? 

Yes, there are some lenders (not many), who allow it.

 

Will I lose the the ability of using only the 10% deposit when I will buy my own house in the future? 

No, you won't lose your ability to buy your own house in the future with only 5-10% deposit, although you won't be able to use the Help to Buy scheme or the shared ownership scheme for your own home unless you sell the investment property.

How will the Stamp Duty work? Will I pay less in the first buy-to-let and more in the future own home?

You can only get a relief from the stamp duty as a first time buyer, if you intend to live in the property, i.e. if you buy your first property as an investment, you'll still have to pay stamp duty. When you buy your second property (whether or not you move into either of the properties), you'll have to pay the higher rate stamp duty, unless you sell the first property in the meantime. Official advice has to be obtained from a conveyancing solicitor.

 

I hope the above helps, Lilla

[tchughes]

8 hours ago, lilla d said:

although you won't be able to use the Help to Buy scheme or the shared ownership scheme for your own home unless you sell the investment property.

 

 

In Wales, if you own the investment property in a LTD company and thus no property personally you are still eligible for help to buy. I dont know if this is the same in England.

 

 

[Lilla D]

I've just received the following written confirmation from the South East England Help to Buy agent:

 

"Homes England have advised that the person would need to be able to sign a declaration that they will not profit from any of the homes owned through the Buy to Let Company and that they will take legal advice on the matter.

If they are happy to comply with this then they are free to use Help to Buy."

[tchughes]

42 minutes ago, lilla d said:

I've just received the following written confirmation from the South East England Help to Buy agent:

 

"Homes England have advised that the person would need to be able to sign a declaration that they will not profit from any of the homes owned through the Buy to Let Company and that they will take legal advice on the matter.

If they are happy to comply with this then they are free to use Help to Buy."

 

Thank for the clarity :-) The Welsh are a bit more flexible hahaa

[pcalessio]

Thanks a lot @lilla d! 
This information really helped. Completely understood the mortgage bit. 

As for the Stamp Duty, let me see if I understood correctly: 

1) If I buy my own property first:

I can use the relief on the Stamp Duty for the first £300,000 and any additional or buy-to-let property after that will be on the higher rate (standard + 3%). 

 

2) If I buy an investment property first: 
I will pay the standard rate for the first property and then the higher rate for any property after that (including my own).

 

3) If I buy an investment property first and then sell it: 
I will pay the standard rate for the first property and then, after selling that property, I can use the first time buyer relief to buy my own property.

 

Is that correct? 

 

Thanks again! 

[Lilla D]

Hi there,

 

Whilst your understanding for points 1 and 2 are correct, I don't think that you can use the first time buyer relief to buy your own property after selling the first property, as you will no longer be a first time buyer. However, if you do sell the first property before or at the same time as buying the second one, then you'll only pay the basic rate stamp duty for the second purchase.

 

Having said all the above, as I'm not a conveyancing solicitor (I'm a mortgage broker), I'm not authorised to give stamp duty advice, so please consider the above as guide only and seek official advice from a solicitor.

 

Have a nice day, Lilla

[DianaR]

On 12/21/2018 at 2:42 PM, pcalessio said:

Hi everyone, 

I live in London and the rent I pay at the moment is much lower than the mortgage I would pay to buy the same kind of property here (like 40% cheaper). 
So, I'm thinking to invest my money in a buy-to-let somewhere else and keep renting in London.  

But I cannot find enough information online to understand if it's a good idea: 

Will lenders allow me to do buy-to-let as a first investment? 

Will I lose the the ability of using only the 10% deposit when I will buy my own house in the future? 
How will the Stamp Duty work? Will I pay less in the first buy-to-let and more in the future own home?  

 

Thanks in advance for any help! 
 

Hi, I'm actually interested in this too, but more from the general perspective: is it a good idea to get a BTL first before getting an owner-occupier mortgage? Just like @pcalessio, my rent is currently lower than my mortgage rate would be, and even a share to buy mortgage would seriously restrict my disposable income.

Would be keen to hear the pros and cons from fellow PropertyHubbers..

[edward zz]

I need help with this too.

As far as I’m concerned, if you buy your own house with 5-10% deposit (for this example 250k property), and mortgage works out at lets say 1k, it means that you are already paying towards your future which works out 12k a year + whatever property price increases in 12 months.

In order to achieve the same number with B2L, I would need at least 4-5 properties to achieve those numbers.

What am I missing there?

[Lilla D]

Hi Edward,

I'm afraid I totally lost you there...

If you pay £1k pm mortgage, then yes, you pay £12k in a year, but it's not reducing your mortgage balance by £12k, as some of it (well, most of it), would have gone towards paying interest. So, some of the £12k will reduce the mortgage balance and thus build your equity along with any potential price increase. So this far I think I'm with you.

But what do mean by needing 4-5 BTL properties to achieve what figures? Sorry, totally lost you here.

 

[edward zz]

55 minutes ago, lilla d said:

Hi Edward,

I'm afraid I totally lost you there...

If you pay £1k pm mortgage, then yes, you pay £12k in a year, but it's not reducing your mortgage balance by £12k, as some of it (well, most of it), would have gone towards paying interest. So, some of the £12k will reduce the mortgage balance and thus build your equity along with any potential price increase. So this far I think I'm with you.

But what do mean by needing 4-5 BTL properties to achieve what figures? Sorry, totally lost you here.

 

Thank you.

I’m in the process of saving my first deposit, around 15-20k.

Currently my rent is around 1k pm. I am thinking, what’s better investment for me at the moment, is it buying my first home in/around London (option A) or buying my first B2L property somewhere up north (option B).

If option A, then instead of paying rent, I would be paying towards paying off my mortgage, which would be roughly 12k a year + any capital gains from the house going up in price. 

If option B, then from deducting all the costs, I would be expecting 100-150 profit (for the ease of maths, let’s say 100), which means I would be gaining 1200 profit per year + capital gains from the property going up in price.

By looking at the next 3 years, where I would be able to save another deposit of 15-20k, I would be better paying my own mortgage, since at that point I would have possibly covered let’s say 15k dept on my own home + capital gains.

If let’s say my property would be worth 250k at the tome of purchase, after 3 years it would be worth 285k (for the ease of calculation lets take 5% pa growth). That means that after 3 years I would save 35k+15k =50k.

If going option B route, I’m not sure if I would have made those 50k, taken in consideration I’ve spent 12k per year in rent, so 36k spent in total + profit whatever I make from B2L.

Am I missing a trick here?

[Guest]

I don't think your first purchase needs to be your own home. 

[edward zz]

20 minutes ago, cathie said:

I don't think your first purchase needs to be your own home. 

Thanks, but could you explain why as the numbers don’t stack up on my side.

Thank you

[Lilla D]

Hi Edward,

Ok, so you're thinking that in 3 years, your own property would be worth £35k more + repaid about £15k of your mortgage, so you'd make/save about £50k in total.

(Just checked and if you bought for £250k, put down £20k deposit, took a 30yr mortgage term, then the £1k pm payment and £15k mortgage balance reduction with a 3yr fixed rate deal is about right.)

As you'll need 25% deposit as a first time buyer first time landlord, if you put down the same £20k deposit, your purchase price will be limited to £80k. Whilst it's unlikely that you'll get £35k value uplift on this in 3 years, it also depends on how good deal you got, how the market moves and whether you do any improvements to the property.  

If you take a £60k BTL mortgage, then it'd cost you circa £100 pm on interest only basis, but if you take it as repayment and have a 20yr term, then your monthly payment would come to £300 and you'd reduce your mortgage balance by £5k in 2 years. However, at this point, you'll have to remember that you were paying £1k pm for the resi and £300 pm for this BTL. Of course, your mortgage balance won't reduce by the same amount.

If you wished to pay £1k pm for the BTL as well, i.e. £700 on top of the £300 mentioned above and to be in line with what you'd pay for the resi, then your balance would reduce to £36k over 2 years or to about £26k over 3 years, so you'd have equity (in adition to the original £20k) of about £34k + whatever the property value increases.

In other words, if you were to make the same monthly payments for the BTL as for the resi, then you'd build up a bigger equity amount in a smaller value property over the same amount of time purely because the mortgage is smaller, so you'd pay it back faster.

 

[Mallbn09]

Thanks for the questions and in depth answers on this. I’ve been searching for answers to this question for a few weeks now.

My partner and I are in the same position and looking to start property investing using a first time buyer, first time landlord mortgage for BTL. We intend for the investing to be a long term retirement plan, hence starting through a limited company.

 

Our question is;

A) can we get a first time buyer/first time landlord mortgage through a limited company?

B ) Is this the best option and are there other options?

C) would buying BTL through a limited company affect our first time buyer stamp duty benefits and help to buy benefits later down the line when we want to purchase

 

I understand through reading that the mortgage companies look at the people behind the company and the limited company is there just for the tax. 

 

Any input put would be greatly appreciated. Thanks.

 

 

[Lilla D]

Hi, just seen your questions.

A) Potentially - very few lender options and subject to T&Cs

b) Buying in your personal name would be easier as a first time buyer first time landlord (more lender options, lower rates)

C) Stamp duty questions are best answered by a solicitor

C2) Impact on Help to Buy - I've posted it a few times on this forum, but as you may not have seen it yet, this what Homes England, the mother organisation for Help to Buy gave as answer when I asked the Help to Buy agent for guidance:

"Homes England have advised that the person would need to be able to sign a declaration that they will not profit from
any of the homes owned through the Buy to Let Company and that they will take legal advice on the matter.
If they are happy to comply with this then they are free to use Help to Buy."

Hope the above helps!