Q:Hello,
I have recently had an offer accepted on a 3 bedroom semi detached house in Birmingham. The house is near main bus routes into Birmingham City Centre, Solihull the Airport (although you can?t hear the plans and the house is not in the flight path), NEC and a number of hospitals.
My mortgage is a 113k and I am buying the house as a fixed rate mortgage that I secured before the two recent rate rises. The mortgage is interest only and works out at about ￡550 a month.
The house does need work doing to it, it needs a rewire, central heating and decorating, new kitchen is needed. There is already double glazing in the house. The house has not been extended although the potential is there to do so.
The other properties on the road tend to sell for around ￡150k – ￡160k when extended.
The houses that are not extended tent to sell for between ￡140k – ￡148k
According to the Estate Agent they extended houses rent for around ￡600 a month unfurnished and the un-extended ones between ￡500 and ￡550 a month.
That is the background to the property.
Now here is my situation, I put an offer on the house, expecting to be living in Birmingham. However, my personal circumstances have changed and I may be moving overseas within the next 3 months to work. I would be moving to Dublin, where I would be unable to afford a house so was thinking I would go ahead with buying the property in Birmingham and renting it out.
I think the house is a good opportunity at the price, however what I am unsure of is it still feasible for me to purchase.
At the current time I would own 86% of the property due to my deposit.
However if I renovate the property and lets say it?s then worth ￡141k I then own 80% of the property due to the increase in value of the house.
Now if I still purchase the property my main questions would be:
If I was to re-mortgage and change to buy to let in 3 months, I would ideally need to own 80% of the property to get some of the better value deals:
Therefore, would the mortgage lender base a potential buy to let mortgage on:
What I originally paid for the property 131k and a loan of 113k?
Or
The value of the property after I carried out the renovation (141k for example) and a loan of 113k?
If anyone can answer I would be very grateful, also if anyone has any further advice to offer I would be grateful, even if it?s pull out of the deal etc
Thank you
J
I have a theory that a lot of the cheaper properties which would have traditionally been bought by first time buyers are now in the hands of investors/landlords who are not selling them (at the moment).
The official statistics therefore overstate the 'average house price' by excluding the cheaper properties.
According to sales recorded between October – December2004 the average property price in the county of West Midlands was £143,770
In July 2007 is was £136,547.
I don't think prices have actually dropped as asking prices have risen very slightly over the last year or so and the LR is recording a rise of 4% but those are the data sets and it might make you wonder exactly how fast the house price boat is moving away from you.
My verdict? There ain't nothing happening! The press is very London-centric and yes, prices have been rocketing again there but really, I've scoured rightmove constantly since I got a pc at home at the beginning of 2004 and the interest rate rises of 2004 just stopped prices from rising with any significance at all around Birmingham.
If you continue to save, you will actually gain in the short term as you have to pay back at least £2 for every pound you borrow in interest.
Even at those prices, I could not afford to buy in Dublin
Don't worry – this is just the beginning of it in Ireland. The boom stopped a year ago and prices have been 'sticky' since then. However, now they've reached the point where many investors/speculators must sell up as they can't cover mortgage payments on their investment properties. Hence the start of the price drops.
Once the economy in general turns down and migrant workers start heading back East with their savings the BTL market there should take another plunge and of course there will be many, many reposessions as people lose their jobs and can't make payments on their houses.
Hard to say if it's a template for GB or not. Believe it or not, the housing bubble there was even more manic than the UK and a much greater part of Irish GDP is dependent on housing vs the UK. However, a very large part of UK GDP comes from finance and retail – both sectors have somewhat shaky prospects for the future.
Thanks for your reply; I suppose one of my main concerns would be if house prices increase further in the future.
Recently there were articles saying that they will continue to increase, however I'm aware for every article like that there is another saying there is a slow down etc.
With being a first time buyer I don't want to be priced out of the market as many others have. If I don?t buy I suppose the alterative is to continue saving and then buy when I am more settled as you have said.
Thanks
J
When you come back, there will other run down properties that you do up with time to spare and you will have more in savings.
As I said, property prices in Birmingham haven't risen in three years. It's not like the prices are running away from you so there's no need to panic. They won't be going up for a long time yet, either.
The rent will not even cover the interest portion of your mortgage, let alone the important bit!
Your circumstances have changed; be brave enough to walk away from the house. Come back later and do the same thing but create a home. Very little will have changed. There is no benefit to letting it out whatsoever. It is very much more of a liability, in fact.
In reply to your question, you will not be able to remortgage froma fixed rate deal to a BTL without a massive penalty fee (£000's). Consider any 'profit' entirely wiped out.
Please don't BTL – it's such a pointless excercise – you will lose more money that you will gain in the short/medium term. Don't do it as a second thought because things changed either; it really is the wrong reason.
Even at those prices, I could not afford to buy in Dublin
Try applying the logic they use for house price increases.
A 30% drop in two months means housing will be practically free come the new year
Seriously though, there's a good chance prices will continue to fall as Ireland has witnessed the bubble to beat all bubbles.
Would it be a feasible option to leave the current mortgage lender after I do the renovation (pay the exit fee) and sign up with another lender.
Therefore the new loan would be less percentage wise (e.g. 80% or less)
Thanks,
J
Even at those prices, I could not afford to buy in Dublin
Thanks for your reply, sorry I have just reread my post and it is confusing
It should have said I would have a loan of 86% of the property decreasing to 80% loan after renovations.
I would be investing 17k into the property, I also have money saved to renovate.
141k after renovations was very much a worse case scenario, I would be hoping for 145k ? 147k value
The reason why the property would appeal to me is because it would get me on the housing ladder, albeit I would have to rent it out.
I would not be able to afford a house on that road, if it didn?t need renovating.
Two bedroom flats and Terraced houses sell for the same price and more in more deprived areas of Birmingham
Thanks,
J
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But, I was told that propery only ever rose in value. 100s of posters on here were adamant that things were different this time and the lack of any slowdown proved the doubters wrong.
Oh, I know, it's a blip caused by summer holidays.
How big is your deposit? You sound a bit confused – you'd be *borrowing* less than 85% on a BTL to get the better deals, you don't *own* it. They would value on the state of the house at the time, but you will find that remortgages tend to be much less genrous than outright purchse, for some reason. With a fixed rate mortgage, I doubt you would be able to outright remortgage after three months and it's likely that your lender turns down any request from you to let it out as they will think you have done it on purpose (which you will have done really because you would be unable to obtain a BTL mortgage with your current deposit)
Birmingham hasn't seen price rises for years now – literally; three! What's the point in having a BTL and being miles away – you'll be paying 10% to a mnanging agent to run your property into the ground (maintain? as if!)
If you want to live in it and have it specced out the way you want then fine, but this venture will be making you nothing as a business.
Sorry. I just wouldn't get out of bed for it :confused:
Oh, I wouldn't worry about that too much just yet…
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