I want to rent out my current home and buy a second with my girlfriend

Do the sums work to allow me to become a buy-to-let landlord?

Q I'm thinking of renting out my home and buying a second house in the near future. My current house is worth around £105,000, the mortgage is £82,000 and I think I could get around £475 a month in rent for it. I'm looking to buy a second property with my girlfriend for around £150,000. I earn £30,000 a year and she earns £17,000 a year. MW

A Your plan to rent out your house while buying another property with your girlfriend seems to work – but only up to a point. Because you don't need to borrow more than 80% of the value of the property you could convert your current mortgage to a buy-to-let mortgage. If you wanted to borrow more than 80% of the value of your property, buy-to-let would not be an option because 80% is the most a buy-to-let lender will lend.

Assuming you went for an interest-only buy-to-let mortgage at the cheapest rate you could get for borrowing 80% of the property's value, currently 5%, your monthly mortgage payments would be £340. The rent of £475 would cover the mortgage payment by more than the 125% required by most buy-to-let lenders, which makes a buy-to-let mortgage look feasible in your case.

However, a buy-to-let lender won't take your word for it that you will get rent of £475 a month; it will get a professional valuation on the rent your property could achieve. If the professional's figure is less than the £425 needed to cover the mortgage payment by 125%, your application for a buy-to-let mortgage would probably be turned down.

The real problems start with your plan to buy a house for £150,000 with your girlfriend. On paper, if you could borrow a not-unheard-of 3.25 times your joint earnings of £47,000, you could get a mortgage of £152,750. But you are unlikely to be able to do so because no mortgage lender these days is prepared to lend the full amount of the price of a property. So the big flaw in your plan is the lack of a deposit for the jointly owned property. For your plan to work, you need to find at least 10% of the value of the property you want to buy to put down as a cash deposit — although a deposit of 15% would be better because the interest rate you would pay on the mortgage would be lower.

For some people considering letting a current home while buying another one, there is the option of raising cash for a deposit on the second property by increasing the loan on the current home when converting it to a buy-to-let mortgage. However, as already explained, your current mortgage is nearly up to the maximum 80% that buy-to-let lenders will lend. So increasing your current mortgage to raise a deposit is not an option in your case. Instead, you might want to think about letting your girlfriend move in with you in your current home while you save up for a cash deposit of at least £15,000 for a jointly-owned home.

Muddled about mortgages? Concerned about conveyancing? Email your homebuying and borrowing worries to Virginia Wallis at virginia.wallis.freelance@theguardian.com

Contributor

Virginia Wallis

The GuardianTramp

Related Content

Can I rent out my property under my current mortgage terms?

Do I have to inform my lender if I want to rent my home, or must I switch to a buy-to-let mortgage?

Virginia Wallis

02, Jun, 2010 @5:15 AM

Article image
Can we release some money tied up in our current home to use as a deposit on a new one?
My wife and I would live in the second property and rent out the other to my sister and her son

Virginia Wallis

28, Nov, 2022 @7:00 AM

Article image
Should we sell both houses or rent one out?
My wife and I are thinking of buying a new home and we’re not sure what to do with our respective buy-to-lets

Virginia Wallis

28, May, 2015 @6:00 AM

Article image
We’re thinking of buying to rent, while still renting ourselves
Also, would we be able to get a residential mortgage as buy-to-rent mortgages are so much more expensive?

Virginia Wallis

08, Jan, 2015 @6:59 AM

Article image
Should I let out my current flat when I buy another one?
My Glasgow flat is on the market and I have received an offer for far less than I paid for it – so am considering letting it out instead

Virginia Wallis

28, Aug, 2013 @6:00 AM

Article image
Does the 3% stamp duty for second properties apply in Scotland?
We might rent out our flat and buy a house, but are unsure if the stamp duty rules apply to our new house even though we’d be living in it

Virginia Wallis

07, Jan, 2016 @7:00 AM

Article image
We want to buy our first home and then move abroad. Is this possible?
We want to return to the UK every now and then and live in the property but we are unsure about buy -o-let mortgages

Virginia Wallis

18, Oct, 2021 @6:00 AM

Article image
Can we up a buy-to-let mortgage to add to a deposit for our new home?
We are looking to change the mortgage on my girlfriend’s flat to a buy-to-let and then purchase our own home

Virginia Wallis

19, Mar, 2015 @10:18 AM

Article image
We want to buy a second property, but can we let out our current home?
My partner and I would prefer not to sell as we may move back in a few years

Virginia Wallis

25, Feb, 2016 @7:00 AM

Property expert: Will a mortgage lender take into account an existing loan?
I rent out my home after failing to find a buyer, but now want to buy a new place. Will a lender take into account my previous mortgage?

Virginia Wallis

19, May, 2009 @11:07 PM