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Percentage Of Rent Required For Btl Mortgage

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I was at a wedding the other week. There was a couple there who had a BTL in Cheltenham. I asked them how they made a profit and they said that the mortgage company won’t give you a mortgage unless your rent will cover 125% of the monthly payments. Is this true? If so how are there so many arguments on here saying that rents do not cover the BTL monthly payments and that they are banking on capital appreciation?

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They can achieve this by putting down a large deposit, thereby reducing the mortgage repayments.

For the mathematically minded, (please correct me if I am wrong)

Required deposit = Cost of house * (1 - yield/(1.25*mortgage interest rate))

So if the yield is 3% and the interest rate is 5% a deposit of 52% of the property is required.

To meet the maximum lending criteria of 85%, required yield is 1.0625 * interest rate.

To obtain these large deposits, BTLs can re-mortgage their own houses. They often forget that they are now paying considerably more for their own house and only see the 25% profit from the BTL property. hence, their overall worth is less than they think.

Hope this clarifies things,

Imp

Edited by Imp

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I was at a wedding the other week. There was a couple there who had a BTL in Cheltenham. I asked them how they made a profit and they said that the mortgage company won’t give you a mortgage unless your rent will cover 125% of the monthly payments. Is this true? If so how are there so many arguments on here saying that rents do not cover the BTL monthly payments and that they are banking on capital appreciation?

I am renting a flat which recently sold for GBP350,000 last september. I am paying £345 per week.

Sums are:

Buy Flat : 350,000

Stam Duty : 10,500

New Carpets, Fully Furnished, Splash of Magnolia : est 6,000

Legal Fees etc : 2,000

Time (finding house, organising things, etc) : work for free

Total : 368,500 - interest of 18,425 per year (at 5%)

My Rent : 17,940 per year

Minus Agents Fees : 1,794 per year

Minus Time (Fix Garage Door, Sign Contracts, Tax Returns, organise gas certificate etc) : work for free

Total : 16,146 per year

So basically a lot of time working for free for negative returns. Surely there are more effective ways of investing money. BTL market smells real bad. Put your money in shares, gold, fine art, stamps, ebay business or even Trap 4 at Crayford, but not a luxury two bedroom flat.

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BTL stinks

The only people that are positive cashflow are those that bought years ago, hence they already made the money

but only if they sell up of course

The rest its a total waste of time, even the bulls must concede the days of double digit price rises are over for a generation to come.And thats a best case scenario and probably unlikely.More likely is YOY drops till the market adjusts right back from where we came from ie affordability.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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