First Direct Mortgage & Letting Out House

Cash-Is-King

Dear Forum

We are buying a new house and decided to rent our house out for a year or so - we have (fingers crossed!) got a very interested tenant - we are to progress to signing a tenancy agreement by next week - things are moving fast...

I am setting up Landlords insurance, getting the electrics tested, the EPC organised etc etc

The rental return covers our mortgage repayments, it is self financing.

Here is my dilemma.

For the new house I want to raise some of the equity out my house say £45K (we have very good equity in our house approx £110K+ even in the current climate).

The rental return will still cover the cost of new mortgage amount - I have had my sums double checked; it will be self financing - and only just.

Option A - Do I ring First Direct up and say I want the cash for home improvements and say nothing about the tenant for the moment - then inform them when in a few months (fingers crossed we get sale agreed on a new house) that we are looking to move the mortgage to the new property at which time we organise a new Buy To Let?

Option B - Or do I ring First Direct up as soon as I get a Tenant in and tell them that a tenant is now living in our house, but we need to raise cash out for a deposit for a new house.

I know Option B is probably the 'right' way to do it but will First Direct try to raise my rate (currently 5.29%, fixed for the next few years)...

I want to get some of my equity, get the tenant settled and move forward.

Please help me make my mind up - the last thing I want to do is ring First Direct, let the cat out of the bag and pay over the odds for things.

Thanks guys

Fire_Fox

Neither option is the right way. If you are intending to let the property you need a buy to let mortgage or a consent to let from day one. You don't tell the lender you ask otherwise you are breaching the terms and conditions of your mortgage, which some lenders take a very dim view of. If you don't have permission to let the lender does not have to recognise the tenancy agreement.

You also need to register for income tax and can only write off the mortgage interest NOT the capital repayments, you may therefore find the tenancy is not self financing. Asking for money for home improvements when you have no intention of doing so is mortgage fraud.

Milliewilly

Can you transfer your FD mortgage to the new house then get a BTL mortgage on your old one releasing some equity from the old one on the way?

5ugar77

I agree with Fire Fox - you must ask permission from your lender to let your house - it will more than likely be absolutely fine as you have good equity - but they still technically own the house, so you can't just decide to let it.. well that's how I'm led to believe anyway

Cash-Is-King

Update:

First Direct don't allow you to let your house; they don't have the insurances. Not that flexible considering they are part of HSBC they should have that in check in my opinion.

Anyway, they said you could find the house you want to buy, agree it, and port the existing mortgage over to it at the current percentage rate and any additional mortgage needed would be at what ever rate you are able to agree.

And for the existing house I would have to get a new buy to let mortgage for it.

My head is spinning a bit now, could someone help explain how I would access the equity in my existing and if this process is going to be too difficult to pull off?

Thanks for your patience guys - !

Jowo_2

Cash-Is-King wrote: »

The rental return covers our mortgage repayments, it is self financing.

It's only self-financing if the tenant pays their rent, there aren't long void periods or high maintenance bills.

Hope you fully screened the tenant as rogue tenants love nothing better than a novice landlord to exploit (credit check, electoral register check, ID verified, previous employer references, current landlord references, NI number, date of birth and next of kin info, all on a comprehensive tenancy application form).

The Landlordzone website has a good section on taxation and probably covers CGT, too.

Cash-Is-King

It would be all through a managing agent who will be doing full checks on them and will carry out quarterly inspections etc - this bit I am extremely confident about, I am just annoyed that the lenders are not flexible.

I am coming round to thinking I need to ditch First Direct (pay them their 2% - sick...!), get a Buy To Let mortgage and release some equity at that stage. Then use the equity to get next house & mortgage and roll with the rest.

It all is a joke as I will have 2 mortgages no matter what, just means I have to incur some unnecessary fees and lots more legal and set up costs. I wish I could just let my current mortgage roll and then secure a new one as opposed to ditching and switching AND getting another new one. Fees, fees and more fees...

Any other way around this guys?

Fire_Fox

Sell your current house and port the mortgage? Have you factored in the costs of letting agents fees (10 to 15%), vacancy (average two months a year), maintenance and income tax when you say it's self financing? Do you know that the tenant doesn't legally have to allow quarterly inspections?

Vincenzo

Cash-Is-King wrote: »

It would be all through a managing agent who will be doing full checks on them and will carry out quarterly inspections etc - this bit I am extremely confident about, I am just annoyed that the lenders are not flexible.

I am coming round to thinking I need to ditch First Direct (pay them their 2% - sick...!), get a Buy To Let mortgage and release some equity at that stage. Then use the equity to get next house & mortgage and roll with the rest.

It all is a joke as I will have 2 mortgages no matter what, just means I have to incur some unnecessary fees and lots more legal and set up costs. I wish I could just let my current mortgage roll and then secure a new one as opposed to ditching and switching AND getting another new one. Fees, fees and more fees...

Any other way around this guys?

You should be able to port your First Direct mortgage to your new property and take out a BTL on the existing property simultaneously. What you are doing is what they call in the industry a 'let to buy'. You will probably find that the maximum you can borrow on the property you wish to let is 75% whilst still getting a reasonable rate. I would suggest you find yourself a good mortgage broker. I have never done this simultaneously but I presume the solicitors would coordinate the release of funds for the two mortgages/transactions.

Vincenzo

Fire_Fox wrote: »

Sell your current house and port the mortgage? Have you factored in the costs of letting agents fees (10 to 15%), vacancy (average two months a year), maintenance and income tax when you say it's self financing? Do you know that the tenant doesn't legally have to allow quarterly inspections?

Fire Fox, I have to question how you would arrive at an average 2 months void? This will of course depend on where the property is, its condition and other property specific and local market factors. I can say this is certainly not my experience (more like 2 weeks max. per year). Also, if the costs of the mortgage (interest only), maintenance, agents fees etc are only just covered by the rent, particularly with rental voids of 2 months per year(!), there will be no income tax to pay. Any losses in early years can be accrued to offset against profits in furture years. Also you can offset interest on other loans up to the value of the property at the point you began letting it, regardless of where these loans are secured.

Fire_Fox

Vincenzo wrote: »

Fire Fox, I have to question how you would arrive at an average 2 months void? This will of course depend on where the property is, its condition and other property specific and local market factors. I can say this is certainly not my experience (more like 2 weeks max. per year). Also, if the costs of the mortgage (interest only), maintenance, agents fees etc are only just covered by the rent, particularly with rental voids of 2 months per year(!), there will be no income tax to pay. Any losses in early years can be accrued to offset against profits in furture years. Also you can offset interest on other loans up to the value of the property at the point you began letting it, regardless of where these loans are secured.

AFAIK two months a fairly standard way of doing your rough workings. As you say the actual void depends on many factors, some of which come with experience which the OP clearly doesn't have.

Income tax still needs to be registered for and factored in to any calculations (even if you put zero in the column) as I stated. Many would-be landlords post on this board thinking they can write off the entire mortgage, repayments and all, and don't need to pay income tax. As you have very eloquently explained, being a landlord is not that simple.