BTL effects on own mortgage

PoorDave

A question for the more "mortgage savvy" amongst you out there:

I understand from a brief chat with my local mortgage broker that if you take out a BTL mortgage, it can be done on the basis of the rental income the rental property will bring in, rather than on a multiple of incomes of the purchaser(s). Correct me if i'm wrong here.

It seem that i would be more likely to be able to borrow enough this way than using multiples of salary.

What i actually want to know is: if i do this, does it affect my ability to move up the property ladder myself in terms of moving and increasing my own residential mortgage lending? If so, how does it affect it (downwards, obviously, but more specifically?)

While i'm asking questions, what impact does becoming self employed have on your available borrowing (assume a like for like earnings)?

silvercar

I understand from a brief chat with my local mortgage broker that if you take out a BTL mortgage, it can be done on the basis of the rental income the rental property will bring in, rather than on a multiple of incomes of the purchaser(s).

Correct. The rental should be at least 125% of the mortgage payments to cover maintanance and vacant periods.
Normally you still have to find a 15% deposit.

if i do this, does it affect my ability to move up the property ladder myself in terms of moving and increasing my own residential mortgage lending?

You would have to declare this on your mortgage application form but provided that it clearly washes its own hands and you haven't fallen behind with payments it should not harm your application. In fact if rents rise over the years and there is a tidy surplus it could show an increased income.

PoorDave

I have seen that most require 15% deposit, but some 20% if you're a 1st time landlord.

My understanding was also that the percentage by which your rent must cover the mortgage payment was based only on the "interest only" payment, and not the "interest + capital repayment" payment. Am i getting close?

roswell

PoorDave,

Correct me if im wrong but are trying to say you can borrow more money getting a BTL morgage instead of a residentual morgage, as in you with take out a BTL morgage then live in the property?

Lizzy

Poor Dave,
I have four BTL properties, three are on interest only. On my applications I was advised to do it interest only because if you take it capital and interest you will still need 125% over and above the MORTGAGE PAYMENTS. If you want a repayment mortgage you can look at doing this in the future when rents have increased. I admit this could just have been the company I used and it might not apply to you. My mortgage market was restricted because I rent to students.

The initial loan on your own property for the deposit reflects on your future HOME purchases as you have added to your loan. If you continue in the BTL market you borrow on the BTL property for the deposit for the next one in time when house prices have gone up. You can get back what you put in in the first place.

I hope I have not confused you too much there.

Lizzy

Roswell. You are not allowed to live in a BTL property and you will find that the deposit required is much higher for a BTL property than your home purchase. If you require a higher mortgage consider getting advice on a self certificated one. I know people who are in normal jobs (not self employed) who have these.

PoorDave

roswell wrote:

PoorDave,

Correct me if im wrong but are trying to say you can borrow more money getting a BTL morgage instead of a residentual morgage, as in you with take out a BTL morgage then live in the property?

To clarify - no, this is not what i'm saying.

More like:

If i currently have a £140k residential mortgage, but would be able to borrow at total of £240k (say) based on current joint salary and affordability for moving to a larger house myself, would taking out a BTL mortgage for £100k effectively "use up" the extra £100k i might be able to borrow, even if the rental paid for itself by having rentla income in excess of the mortgage payments (be they interest only or not)?

PoorDave

Lizzy wrote:

Poor Dave,
I have four BTL properties, three are on interest only. On my applications I was advised to do it interest only because if you take it capital and interest you will still need 125% over and above the MORTGAGE PAYMENTS. If you want a repayment mortgage you can look at doing this in the future when rents have increased. I admit this could just have been the company I used and it might not apply to you. My mortgage market was restricted because I rent to students.

The initial loan on your own property for the deposit reflects on your future HOME purchases as you have added to your loan. If you continue in the BTL market you borrow on the BTL property for the deposit for the next one in time when house prices have gone up. You can get back what you put in in the first place.

I hope I have not confused you too much there.

Lizzy

Roswell. You are not allowed to live in a BTL property and you will find that the deposit required is much higher for a BTL property than your home purchase. If you require a higher mortgage consider getting advice on a self certificated one. I know people who are in normal jobs (not self employed) who have these.

Lizzy, thanks for your reply.

I am not planning to borrow against my current home, for the deposit or otherwise. That will be paid from savings.

Just checking whether if debt on BTL is "self servicing" (i.e. rent covers mortgage payments), this means the extra you borrow to buy the BTL affects your ability to borrow for your own residential needs in the future.

It seems that you can't buy unless the rent covers the mortgage payments (it has just occurred to me how this works when reading your post) by a given %age, as you state, so interest only is the way in, i suppose. Unless you buy in an area where rent are still high enough in relation to property prices.

How are you making sure you can pay off the capital if you need to sell in a hurry for some reason? Stashing cash in an ISA and ignoring it?

Or am i missing another point?!

herbiesjp

PoorDave wrote:

To clarify - no, this is not what i'm saying.

More like:

If i currently have a £140k residential mortgage, but would be able to borrow at total of £240k (say) based on current joint salary and affordability for moving to a larger house myself, would taking out a BTL mortgage for £100k effectively "use up" the extra £100k i might be able to borrow, even if the rental paid for itself by having rentla income in excess of the mortgage payments (be they interest only or not)?

Most lender will ignore self financing bTLs in the background, so you should be able to get your new mortgage based on your income without any deductions for the mortgage commitment.

Lizzy

No BTL mortgages do not reflect on what you can personally borrow unless the BTL mortgages fall behind or default.

The way I was looking at it was, that you need a deposit for the BTL, IF you get the deposit from your residential mortgage by adding to it then you are reducing the amount you can borrow to move by the extra amount borrowed on your own home as it is added to your home mortgage. If you have the deposit in your back pocket or from elsewhere it won't matter at all. The extra 100k remains yours.

Lizzy

PoorDave

Lizzy wrote:

No BTL mortgages do not reflect on what you can personally borrow unless the BTL mortgages fall behind or default.

The way I was looking at it was, that you need a deposit for the BTL, IF you get the deposit from your residential mortgage by adding to it then you are reducing the amount you can borrow to move by the extra amount borrowed on your own home as it is added to your home mortgage. If you have the deposit in your back pocket or from elsewhere it won't matter at all. The extra 100k remains yours.

Lizzy

There is nothing worth remortgaging for in my current mortgage, as we haven't had it all that long.

However, i do have quite a bit of cash around (not quite enough, as always!), so i was thinking of reducing my own mortgage, but then wondered about BTL.

Are you're BTL's close to where you live?

The reason i ask is that i am looking at 2 different areas for my first one, one of which is in my own town, and another about 40-50 miles away. The latter is a better deal, in that the rent to property price ratio is higher, but then it's miles away. I am thinking of doing the day-to-day contact with potential tenants through an agent anyway, so i guess this would ease the burden.

Opinions?

Just looking for someone with experience's take on what to do really!

Any answers from Lizzy or anyone else greatly appreciated.

PoorDave

Lizzy wrote:

Poor Dave,
I have four BTL properties, three are on interest only. On my applications I was advised to do it interest only because if you take it capital and interest you will still need 125% over and above the MORTGAGE PAYMENTS. If you want a repayment mortgage you can look at doing this in the future when rents have increased. I admit this could just have been the company I used and it might not apply to you. My mortgage market was restricted because I rent to students.

The initial loan on your own property for the deposit reflects on your future HOME purchases as you have added to your loan. If you continue in the BTL market you borrow on the BTL property for the deposit for the next one in time when house prices have gone up. You can get back what you put in in the first place.

I hope I have not confused you too much there.

Lizzy

Roswell. You are not allowed to live in a BTL property and you will find that the deposit required is much higher for a BTL property than your home purchase. If you require a higher mortgage consider getting advice on a self certificated one. I know people who are in normal jobs (not self employed) who have these.

Could you tell me which lender you use please?