Buying a 2nd property

butterfriends

I wonder if anyone can offer any advice or help me clarify my thinking.

I bought a 1 bed flat in 2002, it's now worth around £80k and I have around £20k left on the mortgage. I have a flexible mortgage so over the past 2 and a half years I have been gradually increasing the monthly payments and I know pay around 3 times the minimum payment.

I need to buy a larger property, probably around £130k. I want to keep this flat and rent it out as it is in an extremely good position and will be very easily let.

I am self employed, have been since 2003 firstly in a self employed partnership and 3.5 years ago I set up on my own. My income has gone from £15k to £19k to around £25k (need to to my books...) to £37k projected for next year as I have won 1 new contract and increased another.

I am single with one child and have around £10k in an ISA and £5k contingency in my bank account. No debts other than a student loan. Based in Scotland. My parents will guarantee a mortgage.

I have always banked with the RBS and part of me thinks stick with them because they have all my financial records. But this seems a bit naive.

Is the best approach to take as much equity out of the flat as I can?

Are there any lenders who are less keen on self employed borrowers?

I'm nervous about going to a broker / advisor because I'm so scared of being refused - I know this probably sounds a bit paranoid though, but I've never used one before and really dont' know what steps to take.

Any advice will be very gratefully received. Thanks.

Mrs_Bumble

Not sure why you would think that a broker/adviser would refuse you? It is lenders that will refuse.

What you are looking at doing is quite complex. To be able to disregard your committment on the existing mortgage, it will probably need to be switched to a buy to let mortgage.

How much of a deposit do you have to put down on a new property? If it is just the 10K then if you are looking at properties around the £130K mark you are going to need more and realistically a good 10-20% deposit to be able to get a decent interest rate and so you could raise the rest of the deposit by releasing some of the equity from your current flat.

Assuming that you don't have any other debts then a lender is likely to take an average of your last 3 years income so just short of £20K which probably means that max lending is somewhere between 4 and maybe 5 times your income.

You need to find a good whole of market, independent broker who deals with residential and buy to let mortgages to assist you in this.

butterfriends

thanks Mrs Bumble - yeah I didn't write that very clearly did I - yes I'm wary of being refused an application by a lender, and nervous of advisors in general!
so a broker in the first instance rather than speaking to the bank with whom I have all my finances?
would a broker look at refinancing the flat for btl and then look at the 130k mortgage? or would they look at the two loans as one issue?
sorry if these are stupid questions - i have in the past just trusted everything to the bank and have taken their advice (which has been silly) so it feels like baby steps to understand how to address my property finances now

butterfriends

oh i meant to say - the deposit would probably be 10% - 15% - my parents would probably help me out with a few thousand if it meant getting a substantially better deal

Mrs_Bumble

A broker can look at all your options for you. A bank will look at what it can make money out of you on, they can only offer you what they offer and so not always what is best all round for you.

A good, independent, whole of market broker can look at all avenues for you, look at switching the existing flat to buy to let, raising additional money from it for deposit for the new property if necessary as the rates for 75% LTV much more competitive and then look at sorting the mortgage for the new property.

What you are looking to do are two issues and a broker is best placed to look at all options for you, which won't necessarily mean both being placed with the same lender etc.

Not stupid questions at all Get a recommendation for a good broker and then take it from there. Baby steps is ok all about widening your horizons

butterfriends

thank you so much!

herbiesjp

Do you know what kind of rental income you could get?

Are you tied into your current deal/lender? You could ask them for consent to let first if you do not need to raise extra funds for the deposit

butterfriends

i would get around £350-400 a month
no i'm not tied into any deal - i've probably been paying far too much for my mortgage for a number of years...

herbiesjp

butterfriends wrote: »

i've probably been paying far too much for my mortgage for a number of years...

What rate are you paying? I would hope it is low in the current climate

WHo is the lender?

butterfriends

RBS - on a flexible choice variable mortgage
last communication i had from them - in february - the rate was 3.44%
minimum monthly payments in february were around £140 and i'm currently paying £400 each month

herbiesjp

3.44% is not a bad rate.

If you do not need to raise funds for the new purchase, the first port of call would be RBS and request consent to let on the current deal - see what they say.

Once you have that response, you will then know what steps you have to take next 1) BTL and new purchase or 2) simply the new purchase

Hope it helps

IF you are confident in doing this yourself go onto the comparison sites.

Otherwise get in contact with a whole of market mortgage adviser (as stated above already)

Some will be fee free advisers, others will charge a fee