New mortgage and keep old one?

Garmo_2

Hello all this is my first post.

being a novice at all things mortgage I thought I would post here and hopefully get some education in how mortgages and renting work.

I own a home that is worth 100K I owe 37K on the mortgage so that's 63K equity.
The wife wants to move and has seen a nice little house that's priced at 135K

Now this is where it gets complicated (at least for me).

I have been approached by a neighbour to rent my house. He needs it for 7 years, he is currently renting next door, but we have an extra bedroom which he needs as he has a new addition to the family.

Is there a way of keeping this house and renting it while getting a new mortgage for the new property using a deposit that i will borrow against this house.

Has anyone done this?
I visited my local Abbey national branch (that's who my mortgage is with), and the advisor there did not seen to enthused at the prospect. It seemed to be too much hassle for him, as in his words "i'm used to straight moves, this is complicated".


Whats involved and is it worth doing.
Thanks in advance.

clutton_2

you need the advice of a good mortgage broker on this one - you may need a BTL mortgage on your current home - and how much you can borrow against it for the deposit on your new home will depend on the market rent of your own home that you will be renting out.

bob79

Yes, this can in principle be done but whether it can be done in your case depends on a couple of things that you don't mention:
-The amount that your current house would rent for
-Your salary

There are two ways of doing this:
-Getting a consent to let on a residential mortgage
-Switching to a buy-to-let mortgage

Getting a consent to let is probably the cheapest (rates are better on residential mortgages), but since you seem to have a long term let in mind, Abbey may well refuse this or force you to a buy-to-let mortgage after some period of time. A mortgage lender in this case will probably demand that you can afford the mortgage on both properties on your salary (not taking into account rental payments). Your total mortgage would be 172k and according to the Abbey website you would have to earn 40k a year (one salary, a similar computation can be done on the Abbey website if you have two salaries) to qualify for a mortgage of that amount.

Abbey does do buy to let mortgages (see their website). They might force you to switch the mortgage on your current home to buy-to-let. The interest rate is 7.04%. You can borrow up to 75% of the value of the house (that would leave you with 38k as a deposit for your new house, just enough to get 75% LTV and thus a good interest rate on a residential mortgage on that house). Another condition is that the rent must be 125% of the interest on the mortgage (with the 75k mortgage and the interest rate of 7.04% that means a minimal rent of 550 pounds per month).

That were some thoughts on the financial side of things. More important is asking yourself the following questions:
1. Do you want to be a landlord with all the hassle that this causes?
2. Do you want to invest your savings in property (and with mortgages leverage your exposure to the property market)?
3. If your neighbours are intending to live in this house for 7 years, why don't they buy it? Why would they pay your mortgage for 7 years (probably at a high buy-to-let rate) instead of their own?

jill2002

On the information you have provided, it is likely that Abbey will approve a consent to let, however, much more information is needed.

Do you have a deposit for the new property? or will you have to take some of the equity out of your existing property to fund the deposit?

For Abbey to allow a consent to let, you will need to have rental income of 125% of your mortgage payment on Interest only at a rate of 6%. They may charge a fee. However that depends on which package, if any, your existing mortgage is on.

You really do need to speak to an advisor in the branch, I wouldn't expect a broker to know the ins and outs of this, however they would be able to tell you about the options of a buy to let mortgage with another company- you need to weigh up the two options.

The new mortgage for the new property can be taken anywhere, but bear in mind that you may be relying on the deposit coming out of your existing mortgage and therefore, it may be easier to do it all with the same lender / mortgage advisor to ensure that they both get set up at the right time. i.e. you do not want to take the additional loan for the deposit until you need to otherwise you are paying for it to be sat in your account, and from the other side, you need it to be there in time for the completion of the purchase of the new property.

If the Abbey advisor was unhelpful, go to a different branch if there is one local to you.