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Old 17.07.2017, 11:54
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Buy to rent

Hi,
I searched in the forum but could not find a definitive answer. can anyone tell us what are the implications of buying the first property to rent? because of dependencies of school, we decided to buy our first property to rent but we may consider moving in in the future. as far as i know


1) such a property the full 20% should be funded by self which means we cant touch the pension fund for this kind of purchase. is this correct?
2) if we decide a buy a second property in the future, i heard that the interest rates would be higher. does anyone know how high?


are there any other factors to consider from tax perspective for the above scenerio?


Thanks in advance
happycreature
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Old 17.07.2017, 12:31
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Re: Buy to rent

You can't use pension fund to finance it. Although, you could use 3a if you'd live there for a while, but not pillar 2 - its withdrawal comes with strings attached

Downpayment will be bigger than 20% due to affordability criteria. Unlike homeowning where you have job income, here you only have rental income, it has to be profitable assuming 5% interest rates from bank's point of view
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Old 17.07.2017, 13:20
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Re: Buy to rent

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You can't use pension fund to finance it. Although, you could use 3a if you'd live there for a while, but not pillar 2 - its withdrawal comes with strings attached

Downpayment will be bigger than 20% due to affordability criteria. Unlike homeowning where you have job income, here you only have rental income, it has to be profitable assuming 5% interest rates from bank's point of view
Hi Ivank,
Thanks for your reply. But the second paragraph is a bit confusing. is this about point 1 i asked or about point 2 about buying a second home in the future. can you please clarify? we are a couple and both working and put down both incomes as job income which should be sufficient for 2 houses in my view.


cheers
happycreature
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Old 17.07.2017, 13:39
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Re: Buy to rent

I guess the bank should consider your salary towards affordability calculations, but then you have a rent to pay yourself, so that negates some things. I suppose a criterion could be something like: your rent (*3 ?) + expenses at 5% - rent < 1/3 salary, but check with banks, rules vary
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Old 17.07.2017, 13:59
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Re: Buy to rent

One factor is the purchase price vs. bank valuation.
The bank will provide a loan of up to 80% of their valuation, not of the purchase price. Often the price is, however, higher than the valuation => more than 20% may be needed.


As for second home interest, I remember 2 years back, a friend was buying a holiday home and the mortgage rate was approx. 0.4%pts higher than for "normal"/primary residence mortgages. Not sure what the differential would be now; this was with UBS.
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Old 27.07.2017, 16:32
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Re: Buy to rent

just got an initial feedback from one of the banks. and they ask for 30% of the price as down payment without even checking our salaries etc.. completely surprised by this.
we have very good salaries compared to the affordability criteria but cannot invent another 10% of cash overnight.

is this a self imposed rule by the bank or a general rule that every bank follows. as i said before, the property is being bought to rent out.
also the bank did not say if we are allowed to take anything from the pension fund.

can anyone who went through this process elaborate a little bit?

cheers
happy creature
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Old 27.07.2017, 16:34
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Re: Buy to rent

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just got an initial feedback from one of the banks. and they ask for 30% of the price as down payment without even checking our salaries etc.. completely surprised by this.
Sounds normal, have heard the 30% from other people who bought to rent out, seems to be a standard when buying property that way.
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Old 27.07.2017, 16:38
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Re: Buy to rent

Thanks . are we allowed to take the remaining 10% from pension fund is such cases? that means, 20% our own funds and 10% from pension fund.

cheers
happy creature
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Old 27.07.2017, 16:43
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just got an initial feedback from one of the banks. and they ask for 30% of the price as down payment without even checking our salaries etc.. completely surprised by this.
we have very good salaries compared to the affordability criteria but cannot invent another 10% of cash overnight.

is this a self imposed rule by the bank or a general rule that every bank follows.
It's normal and to be expected that banks will ask for more than the standard 20% deposit if the property will not be your primary residence. There's no general 'rule' about this, so some may ask even more than that.

It's perhaps worth noting that once you've bought somewhere as a primary residence you're under no obligation (as far as I'm aware) to inform the lender if that is no longer the case. I wouldn't suggest just lying and telling them that you will live there when you have no intention of doing so, but depending on your circumstances there may be some room to manoeuvre. For example as a couple one partner may be there more than the other and therefore officially live there, hence making the 20% deposit and/or pension pledge something that can be brought into play.

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Thanks . are we allowed to take the remaining 10% from pension fund is such cases? that means, 20% our own funds and 10% from pension fund.

cheers
happy creature
No. As somebody already suggested, using the pension is also dependant in the property being your primary residence.
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Old 27.07.2017, 17:47
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Re: Buy to rent

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is this a self imposed rule by the bank or a general rule that every bank follows
Self imposed. Maybe they're thinking the price is too high, hence want you to cough up more cash. Standard rule is to demand at least 20%. I have a past experience paying exactly that much for a buy to let property.

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but cannot invent another 10% of cash overnight
Then maybe you shouldn't buy. They can ask for more cash anytime if housing prices drop.
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