Couple of days I've asked a question - How long I should pay the mortgage to break even when selling? (is 2 years enough) - as you can tell I'm thinking about taking a mortgage.
I'm trying to gather as much information as possible - the problem is - most of the guides assume people buying home with the intention to live in them. Because London is so expensive I cannot afford a place I would like to live long term.
Hypothetically (don't quote me on that in case any of the lenders will search my name) the intention could be to allow rental income to pay off the mortgage - even if each month I'd be £100 short, I'd be repaying £1000 towards principal and interest and in 25 years I'd become the rightful owner of the place - and I could use the income from selling to buy a ticket to Mars.
Here is a good answer: https://www.theguardian.com/money/2015/jan/08/buying-to-let-while-renting
Although we would love to buy in London, we cannot afford the deposit for anywhere we would want to live.
So they asked if they could buy a property and then rent it out:
And the answer is no, you can’t. Residential mortgages are for properties that the borrower will live in and call home. If you want to buy a property which you will rent out and never live in, you need a buy-to-let mortgage which could be tricky.
Of course it would be irresponsible to take 'no' as an answer...
Is often a time limit before you can rent it out?
And two opinions:
It will depend on your lender and individual circumstances, but your mortgage deal could be kept the same and your lender will provide you ‘consent to let’ without any additional charges, however that is very much at their discretion. Nowadays they will want to charge you for consent-to-let, possibly add a premium to your mortgage interest rate, and ultimately limit how long you can stay on the standard mortgage before being shunted on to a buy-to-let one.
However, in accordance with the rules of the Help to Buy ISA scheme, if a person claims a Help to Buy ISA bonus and does not intend to make the property their home, the Government will seek return of the funds. I haven’t yet received information on how it’d happen in practice, nor whether there’d be a fine (I’m assuming not from reading the statement above). Of course if you are switching to renting at some point, you should get your mortgage lenders permission (which can be tricky) or switch to a buy-to-let mortgage.
Sidenote - http://jakoszczedzacpieniadze.pl/jak-kupic-10-mieszkan-na-wynajem-na-kredyt-hipoteczny - author of a very popular podcast about managing money has a plan to acquire 10 buy-to-let flats using personal mortgages... If he call pull of such a stunt I should be allowed to start with one.
What I should do:
- read the small print
- negotiate with bank
- inform the bank
- switch to "buy-to-let"
Are there any considerations and "must known" gotchas?
UPDATE: https://www.gov.uk/stamp-duty-land-tax/overview - https://www.gov.uk/stamp-duty-land-tax/overview - Government had scored “a spectacular own goal” by raising stamp duty rates to 12 per cent for homes worth more than £1.5 million
PS: To anyone facing similar dilemmas - ISA is the no-brainer - https://www.helptobuy.gov.uk/help-to-buy-isa/how-does-it-work/ - "The Government will top up your savings by 25%" up to £3000 - it's essentially free money and I cannot see any downside.
EDIT / UPDATE: https://blog.moneysavingexpert.com/2016/04/can-you-rent-out-a-home-bought-with-a-help-to-buy-isalifetime-isa/ - same link, but probably an updated content. Seems like the rules changed now. UK is a country with long history of land ownership, I should have considered that back in 2016.