Hi there can anyone give me any advice. I am a single person planning on going abroad in about a years time (staying away probably 2 years), and have £10K painfully saved up towards a house / flat / my dotage (ie this has to cover deposit, all costs and setting up a place with furniture etc). This money has been so hard to save I am terrified of wasting it!! I'll be travelling, volunteering or earning local wages, so I won't be able to bail out my mortgage if the rent won't cover it for any length of time, or if there is a long void period. I am confused about the type of mortgage to get, as I don't think I have enough deposit to get an interest only buy to let mortgage, but will I have to pay a lot of tax if I get a normal mortgage? If I have to pay tax, will that make the whole thing uneconomical? If anyone has experience of this all comments gratefully received.

Not really sure what you mean about paying tax.

With any mortgage you only pay tax on the profit. ie. if you let the house and your rental income is more than the mortgage and other costs.

With an ordinary mortgage you are supposed to let the mortgage company know if you let the house. They may not be happy about this and insist you change the terms or change to another mortgage provider. If they do the latter you might have to pay an early redemption charge. Some people just let and don't tell the building society - obviously this is a risk.

Alternatively you could get a But to Let interest only and you would only pay tax on the profit. However, you will find that because today's house prices are so high it is very unlikely you would cover costs with 10k deposit. In my experience BTL deposits are 10% minimum and that would be on a higher rate. Plus they are expensive to set up eg £500 minimum plus buying costs, say £450.

To sum up I don't think you can do it and cover your costs.

Thanks Vision, do you mean i couldn't cover my costs with a Buy To Let mortgage or in general? If I paid a 5% deposit on a £100K place, and got a mortgage broker to search for a normal repayment mortgage from a company where they won't force redemption if I decide to let, do you think that would work out? I am not trying to have this property to make any profit while I am away, I am just not going to be able to bail it out if it doesn't cover it's own costs. My long term aim is just a house to come back to. What bothers me is having my trip cut short if every month there is a shortfall.

Interest rates have gone up and are not much cheaper than 5% ( and they might be withdrawn soon ) so if you got an ordinary mortgage then it would cost around £475 pcm on an interest only term. You would have to rent it for around £500 minimum to cover all the costs like insurance, maintenance etc.
Also you get a lower rate for higher deposits so you could end up paying higher than 5%. If you search the net you can find building societies/banks with calculators based on their products and that would give you a better idea.

The other problem is that I don't know where in Sheffield you would get a house for 95K that would generate rent of £500. This is a fairly decent rent and so tenants would be looking for a reasonable property in an ok area.

I would advise you to look for a suitable property first and then ask advice about rental value from a letting agent before committing yourself.

Hi notion900

I'm not one for reading books, but I suggest you take a look at the book "The Seven Pillars Of Buy To Let Wisdom" by Ajay Ahuja. It explains to you how to do the number crunching for a successful buy to let project.

I found it very informative :)

Hello

You wont have to pay tax if you are away a full tax year... you are appaently classed as a non resident.
even if you did...you would pay it on anything over the 5K profit.... which im guessing you wont make 5Kprofit.

check with the inland rev.... but I have just done a similar thing.
I felt much better travelling, knowing I had an investment. You could maybe buy on a std morgage... bu dont tie yourself in... the remorgage on a buy to let before you go... maybe you will have some equity....

Notion,
So you are putting 10K down on a property, and taking out a hefty mortage which you want to cover by letting. And you are going abroad for a couple of years!
Sorry, you dont want to hear this but..
You are taking a big risk of landing up in the mire.
Can people actually get mortages on the basis that they will have no personal income in the future? (probably yes, but its wrong)
If you dont get a tenant, or you get the wrong type of tenant - you are in trouble (who will manage it while you are away - an estate agent charges 15%)
If interest rates rise much more or the economy takes a dive - you are in trouble - ask some of our older posters who remember 15% interest rates.
Think about it, and would your 10K be better off in the building society?, or why not take it with you and have the best two years of your life!
Where are you going BTW?