Second Mortgage Advice

wdcohn

Hi Martin and clever money people...

I hope I can get some feedback reference the below:

- We purchased our little one bedroom garden flat in 2007, it is located in London. At the time we purchased before the credit crisis with 100% interest only mortgage at 7% on the capital value of £189k. The first three years was very tough but we are now on the base rate and have decided to pay extra in order to gain some equity in the future. That arrangement can be changed as we needed the flexibility.

- In order to increase value/equity we decided to put in a planning application for a conservatory that can be used as a second bedroom in the event that we plan to have a family. That plan has now slightly changed...

- Our main aim is to keep this little place as a pension one day and purchase a family home instead of doing the conversion which can be completed at a later stage if we are able to lease the flat and purchase the family home.

- Our lender GE refused point blank to help with our request. How will it be possible to keep this flat and lease it and then purchase a 3/4 bed home around £200k in around two years time.

I am planning as we really want to keep the flat as an investment and pension. I hope you or the team can help!!

All advice will be appreciated.

Regards
Wayne

:money:

kingstreet

Before we get into the issue of renting out the flat when the lender won't consent, where's the deposit coming from to fund the new purchase?

In addition, will your incomes cover the new mortgage and the current one, as most lenders will not ignore the mortgage on the flat, even if it is rented out?

JQ.

At a rough guess you'll need about £90,000. That constitutes the deposit for the BTL on your current house, deposit on the new house and all the costs of moving etc.

That £90,000 can come from equity in the current house, cash in the bank or any combination of the 2.

Without the cash it won't work.

Richard_Webster

...and if you go back to your conservatory idea, presumably as its a flat its leasehold and you would probably need the freeholder's consent for the consevatory which he would charge for and the area leased might no include the land where you want to put the conservatory and the freeholder would charge for amending the lease to include it....

wdcohn

Richard_Webster wrote: »

...and if you go back to your conservatory idea, presumably as its a flat its leasehold and you would probably need the freeholder's consent for the consevatory which he would charge for and the area leased might no include the land where you want to put the conservatory and the freeholder would charge for amending the lease to include it....

Hi Richard

We own a share in the freehold and have confirmed that the extension would be fine. It is down to our planning application with the council when we proceed.

Q: Your thoughts on doing a 10k conservatory extension, then selling two years down the line or even better getting the BTL at that time and purchasing the second property?

Thanks,
Wayne

JQ.

You need to speak to a local estate agent to find out if it will add value. It would be a very difficult question to answer on the internet. Some properties will benefit others will not. A 1 bed flat having a conservatory does sound a bit odd to me. It sounds overdeveloped. Questions to ask :

What is the value of the flat now, with a 100% i/o mortgage from 2007 you could already be in substantial negative equity?
Does a 1 bedroom flat need a conservatory?
Would a conservatory actually add value on a 1 bed flat, if so how much?
Would a conservatory increase the rent payable on a letting, if so how much?
What rent would you expect on the flat - if the rent does not offer enough of a multiplier for the mortgage you won't get a BTL? I think you'll need at least 125% with a good deposit in place.
Would a tenant be able to use the conservatory as a bedroom?
Would reducing the size of the garden in a 1 bed garden flat have a negative impact on value, if so, how much?

Only someone who know the market in your local area can answer those questions. Don't forget if you do get some EA's round try and get them to be as realistic as possible, after all they will be trying to win you business.

Richard_Webster

Hi Richard

We own a share in the freehold and have confirmed that the extension would be fine. It is down to our planning application with the council when we proceed.

Yes but if the area concerned is not in your lease you will still have to do a deed of variation to amend your lease to include it.

As to BTL although I'm not that up to date withe present lender criteria I would have thought they are unlikely to lend you more than 70-75% LTV therefore you've got massively to over pay on your present mortgage, find some cash from somewhere or hope house prices go up quite a lot, otherwise i can't see how you could remortgage to a BTL one.

ninky_2

it sounds a bit like you are letting your heart rule your head - which can be fine when it comes to your home to live in but isn't the best way to go about retirement planning.

what makes you think this flat stacks up as a retirement plan?

are you doing the conservatory because you want it or because that is the best way to invest that extra money to see a return in retirement?

as a second property it will attract capital gains when you come to sell - have you factored that in?

if you intend to rent it full time you will also either have to own it outright or have it on a buy to let deal (which is more expensive and requires more equity in the property).

i'm not saying don't do it - just consider the downsides as well as the positives.

Jenniefour

Be careful with adding a conservatory. You might want to consider adding a proper second bedroom if it's possible, because it adds habitable space. I don't believe conservatories add a great deal of value - and sometimes none at all. They are not something that appeals to everyone. I am currently buying a house with a conservatory, and not being a conservatory lover (quite the opposite) it's going to be removed. I have already asked the agent what difference in value that might make should I want to move in future - his answer was none at all. Because conservatories are not counted as habitable space in valuations in the same way living rooms, bedrooms and so on are, regardless of how people choose to use them. They just make a property more attractive to some. So if you plan to add a conservatory to be used as a second bedroom be aware that just because it will be used as a second bedroom it does not mean that it will add the same value as a proper second bedroom extension that is not a conservatory. And, as in my case, it may add nothing at all, or so little it is not worth doing from an adding value perspective.

And take note of the good Mr Webster as well - concerns my point about whether the garden belongs to you or is communal, as below.

You say the flat is a garden flat - does this mean you have a ground floor flat and use of a shared garden, where you possibly have direct access? Or that the garden belongs to you entirely, no-one else has the right to use it and this is reflected on the boundary plan of your flat?

As recommended by JQ all this needs researching thoroughly before you spend a penny on things like planning applications.

Jimmy_31

Jenniefour wrote: »

Be careful with adding a conservatory. You might want to consider adding a proper second bedroom if it's possible, because it adds habitable space. I don't believe conservatories add a great deal of value - and sometimes none at all. They are not something that appeals to everyone. I am currently buying a house with a conservatory, and not being a conservatory lover (quite the opposite) it's going to be removed. I have already asked the agent what difference in value that might make should I want to move in future - his answer was none at all. Because conservatories are not counted as habitable space in valuations in the same way living rooms, bedrooms and so on are, regardless of how people choose to use them. They just make a property more attractive to some. So if you plan to add a conservatory to be used as a second bedroom be aware that just because it will be used as a second bedroom it does not mean that it will add the same value as a proper second bedroom extension that is not a conservatory. And, as in my case, it may add nothing at all, or so little it is not worth doing from an adding value perspective.

And take note of the good Mr Webster as well - concerns my point about whether the garden belongs to you or is communal, as below.

You say the flat is a garden flat - does this mean you have a ground floor flat and use of a shared garden, where you possibly have direct access? Or that the garden belongs to you entirely, no-one else has the right to use it and this is reflected on the boundary plan of your flat?

As recommended by JQ all this needs researching thoroughly before you spend a penny on things like planning applications.

Same thoughts here on the conservatory, im not yet looking to buy my first home but have been browsing rightmove for a while and every time i see a house i could possibly intrested in then odds on its got a conservatory stuck on the back.

If i end up buying a home with a conservatory its pretty much guarenteed that i will be removing it to add a kitchen extension to the house instead. some people love conservatorys but i can never really figure out a good reason why id want to sit in one myself, just not for me i suppose.

Jenniefour

Jimmy_31 wrote: »

Same thoughts here on the conservatory, im not yet looking to buy my first home but have been browsing rightmove for a while and every time i see a house i could possibly intrested in then odds on its got a conservatory stuck on the back.

If i end up buying a home with a conservatory its pretty much guarenteed that i will be removing it to add a kitchen extension to the house instead. some people love conservatorys but i can never really figure out a good reason why id want to sit in one myself, just not for me i suppose.

The problem with conservatories is that some love them and some, like me, detest them. That's why they're such a questionable proposition in terms of possibly adding value.