Dear Delia, My client is relocating abroad for the foreseeable future and wishes to remortgage her residential property as a buy-to-let investment. Her mortgage balance is 118,000 and the property can be rented out for 600 per month. Can anyone help?
Delia says: Many buy-to-let products are based on the property being self-financing, meaning the rental income earned from the property must cover the mortgage payment. Mike Fitzgerald of Brentchase Financial Services and Helen Kleier from Rooftop Mortgages offer advice this week.
Have you got a problem for Delia? Email email@example.com
Mike Fitzgerald is sales director at Brentchase Financial Services
This client is relocating abroad for the foreseeable future and this could be for several reasons. Usually, such moves are work-related so let’s assume that is the case with this client.
While relocating abroad can be lucrative there are several important things to deal with before leaving the country. The client owns a property in the UK and wisely wishes to retain the property in readiness for her return. This way she will still be on the property ladder and hopefully see her investment increase.
Her mortgage is for 118,000 and she has ascertained that she can rent the property out for 600 per month. I recommend that she consults several property management companies in the area and also speaks to other landlords to try and find a management company that has a good reputation for dealing with tenants and the problems that crop up from time to time.
Any client wishing to let out their property should speak to an accountant to get an understanding of the tax position on the rental profit and any other tax liabilities that might arise when working and living overseas.
Once this has been done the client should speak to her existing lender to see if it will allow her to rent the property out. She may be in a redemption penalty period and also on a good rate. Some lenders will allow her to continue on that rate and she can then remortgage to another good rate. If her lender is not happy with her renting the property out the way forward would be to look at the many competitive buy-to-let schemes available. We do not know the value of the property and will assume it is under 85%. The expected rental of 600 should be enough for most lenders.
We would want to conduct a thorough fact-find before we recommended a lender to this client. She should have a good idea of how long she will be abroad and the rate chosen should not extend beyond her stay overseas.
There are also a number of buy-to-let lenders that specialise in helping clients who wish to move abroad and rent out their UK property. One lender we would speak to would be Irish Permanent International which is based in the Isle of Man. It has several tracker rates and fixed rates priced according to LTV.
Another lender we use for this type of client is Cheltenham & Gloucester. It has a good range of buy-to-let rates for tracker and fixed mortgages and its service standards are good. Rooftop Mortgages also accepts this type of mortgage. The rates are not so competitive and its service standards slipped earlier this year but seem to be improving.
Helen Kleier is product development manager at Rooftop Mortgages
Turning your residential property into a buy-to-let investment can be a wise move for UK residents moving abroad.
Because the property market in the UK has been buoyant over the past few years, maintaining a property here is smart as long as you don’t need the funds to finance your relocation. Not only does it allow you to maintain a foothold in the UK property market, it also means you will benefit from property price inflation. A long-term investment in the property market can yield healthy returns.
But first she must find a lender that will lend to ex-pats. There is a relatively small but growing number of lenders that will lend to UK residents relocating overseas. With people’s work lives becoming increasingly mobile there is a growth opportunity in lending to these people.
While we don’t know the value of the client’s property it doesn’t sound like she is raising additional funds as part of the remortgage so we can assume she doesn’t require a high LTV. This will make it easier to find a lender as some lenders limit LTVs on their ex-pat mortgages. Neither is it clear what her credit history is. If she has a clean credit history the number of options open to her will be greater.
Many buy-to-let products are based on the property being self-financing, meaning the rental income from the property must cover the mortgage payment. Lenders have different requirements. For example, some ask that the rental income covers 130% of the monthly payment while others don’t require the rental income to exceed the payment.
This client sounds like she would fit Rooftop’s near prime product. This product stipulates that the rental income must cover 100% of the monthly interest payment based on the initial fixed or discounted rate. Based on the 600 per month the client will receive in rent she would fit our current fixed and discounted rate options. The near prime product allows for lending up to 80% as well as minor adverse credit.
Depending on the LTV the client requires and the interest rate offered by other lenders there may be other options available. Mortgage Express, Mortgage Trust and The Mortgage Works all lend to ex-pats up to varying LTV limits and have different rental income requirements. In terms of high street lenders, NatWest offers mortgage products to ex-pats.
It depends on the client’s circumstances but there may be a number of options available to her. Lenders recognise the opportunities in the ex-pat market and are designing products to cater for it.