Mortgage chances

spitz83

Hi folks,

Would appreciate some feedback on the chances of the following coming off. Will try and get all the details down.

1) I already own a flat. Bought for £110K on 5 year fixed mortgage in Oct 07. O/s mortgage with Nationwide is circa £101,500, repay 600 p/m cap + interest. Property value is probably now roughly the same as the o/s mortgage.

2) Have seen a new build house that we would like to go for. Value £187,500. Developer will give a 5% discount on price. I have enough savings to cover the remaining 15% deposit plus legals. House will be complete end of March.

3) Have spoken to estate agents. Strong rental market in my area and it is likely that my flat would rent quickly. I dont want to sell my flat and would prefer to wait until things pick up again. i realise this could be a few years.

4) I have requested consent to let from Nationwide. I am aware of the 1.5% addition to mortgage rate after 6 months but (although not happy about it) i am prepared for it and can afford to subsidise the difference between mortgage and rental income, this will be no more than £200 p/m.

5) To reduce the monthly loss in point 4) i have also applied to change my repayment mortgage to interest only. This would take my monthly repayment to £510 which will nearly be covered by my rent. At maturity date of the mortgage i have told Nationwide my pension lump some would cover the payment. (which it should based on actuary projections). In reality i will sell the flat when the time is right.

6) If this is approved i will apply for a mortgage on the new property. The broker has told me that there are basically 2 mortgages who will allow the 5% discount to be used as part of a deposit. Nationwide (2 year fixed at 3.99) or HBOS/Lloyds (2 year 5.69%). So it is Nationwide or nothing for me. The broker tells me that he thinks i should be accepted but it is close on the affordability calculator.

My details:
I am a chartered accountant, salary £38K. Partner in police (for 6m) salary £23,500. I have a car loan of £6K (£241 p/m) and a student loan (£172 p/m) due for repayment in about 6 months. Partner also has student loan (£60 p/m) not due for repayment anytime soon. Excellent credit history, no other debts. Both have credit cards, not used much and always repaid in full at end of the month etc. Total mortgage would be £251K. 101K flat and £150K house.

My main questions are:
1) Am i likely to get consent to let?
2) What are the chances of being approved to switch from repayment mortgage to interest only.
3) Am i likely to be approved for the new mortgage.
4) Are there any other mortgages available that would be suitble that he has not told me about / has access to?

Sorry for the long post but just wanted to get all the relevant details down. I am not hopefull of this all coming together as i know how tough the market. Hope someone can let me know if i am wasting my time? Thanks in advance for the help.

Thrugelmir

What's your contingency plan if property prices fall and interest rates rise steeply? In essence you are leveraging up on the basis that the market is going to recover in the short term.

Also that the property will be fully let with no void periods and you have made no allowance for either maintenance or letting costs.

As a Chartered Accountant I thought that you would know that you are not incurring a loss (point 4). You would merely no longer be repaying the capital element of your mortgage. Hence my initial comment.

If the net after tax rental income (i.e profit) is insufficent to repay an element of the capital balance outstanding. Then it's not an investment merely a punt.

My comments are personal views of course.

spitz83

Thanks for the reply. Just to address some of your points. Both my mortgages would be / are fixed term so i dont see what impact any interest rate rises would have over the next 2 years at least.I have done a full budget and can afford both mortgages even if the flat was not let at all. If it costs me 600 per month mortgage and i get rent of 500, that, to me, qualifies as a monthly loss. Clearly this is not an investment and I dont believe it is a 'punt'. I am trying to work things into the most affordable setup.

I would have appreciated your views on the questions i asked in the post rather than wasting time speculating about house prices, interest rates and investment returns.

Thrugelmir

spitz83 wrote: »

I would have appreciated your views on the questions i asked in the post rather than wasting time speculating about house prices, interest rates and investment returns.

I would never consider thinking through various scenarios a waste of time. As ultimately I assume your aim is to make not lose money.

A BTL mortgage requires a 25% deposit and a rental income in the region of the 120% of the rental income. Most BTL mortgages carry an arrangement fee of 1.5% of the capital advance.

So the consent to let route is your only option.

spitz83

Thanks. Believe me i have deliberated over this for a long time and tried to consider everything. As you say BTL is not an option, so it has to be consent to let on a resi mortgage. I won't make money on this for at least 2 years and even then it would depend on how the market is and on mortgage availablity. At the end of the day the new house would be somewhere we would stay for a long time and, if i can get the finances right, i think the benefits far outweigh the risk.

somethingcorporate

spitz83 wrote: »

Thanks. Believe me i have deliberated over this for a long time and tried to consider everything. As you say BTL is not an option, so it has to be consent to let on a resi mortgage. I won't make money on this for at least 2 years and even then it would depend on how the market is and on mortgage availablity. At the end of the day the new house would be somewhere we would stay for a long time and, if i can get the finances right, i think the benefits far outweigh the risk.

Are you sure that Nationwide would let you have what is in essence 2 residential mortgages?

We have just converted our property to consent to let but the mortgage company would not consider us for another residential mortgage when we want to buy a new place.

It would certainly be worth asking the question otherwise it may be a none starter with the nationwide.

Good luck with your plans.

spitz83

thanks for sharing your experience. The broker tells me that as long as i pass the affordability on both mortgages i will be able to do it. But i have major doubts. I guess the unfortunate thing is i only have a pool of one mortgage to choose from.

somethingcorporate

spitz83 wrote: »

thanks for sharing your experience. The broker tells me that as long as i pass the affordability on both mortgages i will be able to do it. But i have major doubts. I guess the unfortunate thing is i only have a pool of one mortgage to choose from.

I would give Nationwide a call yourself and sound them out over whether they will, as a principle, allow you 2 residential mortgages.

Our lender was Bank of Ireland and despite being able to afford both they wouldn't entertain the option of giving us a second one.

Thrugelmir

somethingcorporate wrote: »

Our lender was Bank of Ireland and despite being able to afford both they wouldn't entertain the option of giving us a second one.

Did they suggest a BTL mortgage for the first property as an option?

Thrugelmir

spitz83 wrote: »

thanks for sharing your experience. The broker tells me that as long as i pass the affordability on both mortgages i will be able to do it. But i have major doubts. I guess the unfortunate thing is i only have a pool of one mortgage to choose from.

Have you researched the Nationwide website as to the conditions of Consent To Let? The rules of lending are changing very rapidly. As lenders block obvious holes.

somethingcorporate

Thrugelmir wrote: »

Did they suggest a BTL mortgage for the first property as an option?

We were relocating 200 miles or so and didn't want to rush into buying a house so would have faced an £8k redemption penalty on our fixed mortgage if we had converted to BTL and redeemed the residential.

Fortuntely BOI couldn't have been better or more flexible and gave us 2 year consent to let at our current good rate for £299 fee. Bargain!

And it puts other lenders off a lot less than we thought, only a couple we have approached were concerned we had another property and only then did they restrict multiples. It has actually been a great experience!:D