Applying for mortgage then renting apt. out

Kurumba

I am looking into the possibility of buying a first time house / apartment with a friend of mine just to get on the ladder.
However I don't intend living in it myself, I would rent it out and let my friend choose whoever she wants to live with etc. But financially it might not be the best time for me to apply for a mortgage, I would be able to afford repayments alright, but it would be more ideal if i wasn't paying off loans etc for the next 8 months or so.

Anyway the question I have is, whe applying for a mortgage would they take into account that I don't intend to live in the house myself and I intend to rent it out or would this have no impact on the application at all?

The_Conductor

jessie1 - first of all, as you are not living in the apartment, the entirety of the rental income is considered taxable income (less expenses incurred in the course of the renting). You do not have the 7620 tax free ceiling that you would have under the rent-a-room scheme.

You would be exhausting your FTB status, on half a house that you are buying for investment purposes in a falling market. You could find that should your friend exercise a right to buy out your portion of the house that the proceeds would fall far short of covering the o/s mortgage in your name.

Its always difficult when people are buying property together- you have to have an exit agreement in place, should one party wish to leave the agreement. As you are not living in the property- it could well be that in 3-4 years time your friend could decide that as the market has fallen so much, that he/she might like to buy out your share (or indeed sell the house altogether and move elsewhere). Have you considered this? However good a friend your friend is- you must ensure that your investment is copper fastened- you will need a good solicitor to draw up an agreement.

Re: Mortgage- a bank or building society is more likely than not to insist on collatoral other than the property being purchased when property is being purchased in the current market (or alongside the property). This is to cover themselves in the event that the market slide continues and their mortgage may exceed the resale value of the house. They are also likely to charge a much higher margin on 100% mortgages than they would have done in the past, because of the extra perceived risk involved.

Your mortgage approval is normally based on your proven income (by means of P40s, certified salary scales etc). As its an 'investment' rather than a residential mortgage, this may be viewed in a different manner.

You need to sit down with an independent financial adviser who will advise you of what your best options are.

Personally I think you are mad considering half a house and using up your FTB status as an investment in the current market- you have your reasons no doubt.

S

Kurumba

Thanks so much for the reply. It was very insightful as I am clueless to these things. We haven't actually agreed on anything yet, myself and my friend are only considering this as neither of us would be in a position to buy on our own.

We both have partners but for one reason and another it's not possible for us to buy with either of them at the moment but we are at an age where we would really like to get on the property ladder sooner rather than later.

But then there is the question of whether the housing market will slide to the extent where i might be able to buy alone. But by the time that happens, if at all, i will be a few years older and still have no property to my name.
I might look into the Affordable Housing and the rent a room scheme. I'm not too sure what this scheme is but will look it up.
Thanks again for the input.

SkepticOne

If you go down the buy-to-let route make sure you fully understand the numbers. Treat it as you would the running of a business.

Without assuming either price rises or price falls, imagine that you are selling the property in ten years time. Will you have made a profit or loss overall on the business? At the very least, your expected rent (less tax) should fully cover the amount you would be paying in an interest only (for the purposes of comparison) mortgage.

In a thread a couple of weeks ago, someone worked out that 100 grand would be lost in 5 years if a property was bought to let in Donnybrook.

With the sort of money involved it is worth seeing a fee-based independent financial advisor.