Converting a buy to let mortgage to a residential one?

MoneyJuggler

Hi,

We have found a house we love, and are about to put our house on the market in the next two weeks.

The vendors of the house are in a hurry to sell as they too have found somewhere they want to move to, so put their house on the market last week.

I know for a fact that there is a cash buyer also interested, who we obviously can't compete with on time.

However , we do have a large enough deposit, and (providing the rental income is 125% of interest, which we think it will be) to buy the other house without selling ours, on a Buy To Let basis, pretty much immediately. Fees are high, but this will be the last time we move we think, so will be our home for (hopefully!) the next 30 years, so we are prepared to take the hit,as we feel the house is worth it -nothing remotely like it in the area , have been keeping an eye out for over 18 months, as well as researching the area.

So the plan would be to make an offer near asking price on a buy to let mortgage, stay in our house until sold, whilst renting out the one we want to move to on 6 month contracts. Then when we sell our house, use the money left over to put into the new house and move into it, changing the mortgage to a residential one again.

Does anyone know if this could work? I'm inexperienced in this type of thing, and it's ,making my brain ache!

Any help/guidance greatly appreciated, thanks in advance!

Yorkie1

One thing which would concern me about that plan, is whether you'll be able to time your sale date, with the tenants leaving. You can't guarantee that they will leave at the end of 6 months, even assuming you've given notice properly. If they refuse to leave, you have potentially several more months of court processes to go through before you can get your house back - and will need somewhere to live for that period.

Your buyer is unlikely to want to wait indefinitely, and you would be ill-advised to exchange on your sale until you know you already have vacant possession of your rented house - but this will involve you having a void period on the rented house, and thus having to fund two mortgages for as long as it takes.

MoneyJuggler

Yorkie1 wrote: »

One thing which would concern me about that plan, is whether you'll be able to time your sale date, with the tenants leaving. You can't guarantee that they will leave at the end of 6 months, even assuming you've given notice properly. If they refuse to leave, you have potentially several more months of court processes to go through before you can get your house back - and will need somewhere to live for that period.

Your buyer is unlikely to want to wait indefinitely, and you would be ill-advised to exchange on your sale until you know you already have vacant possession of your rented house - but this will involve you having a void period on the rented house, and thus having to fund two mortgages for as long as it takes.

Thanks, that's a good point -in that scenario I think we would sell, and move into rented until our tenant's contract was up, and yes , there would be a risk of bad tenants as well.

kingstreet

Why not consider letting your current home, rather than the one you are buying? All you'd need is consent to let from your current lender and to change your buildings insurance to non-owner occupied.

You'd then get a new residential mortgage, pay less in fees and have the benefit of living in your new home immediately.

You've also got a much better chance of a mortgage which is free of early repayment penalties, which will be useful for paying off a big lump sum when your current property sells.

herbiesjp

What are the figures on the first property i.e. value, mortgage amount, expected rental income, mortgage payment?

What are the same figures for the second property (not mortgage payment though)?

What are your incomes? Any other debts? Any children? Good credit history?

You can do either way, assuming the scenario allows you, hence the questions.

MoneyJuggler

kingstreet wrote: »

Why not consider letting your current home, rather than the one you are buying? All you'd need is consent to let from your current lender and to change your buildings insurance to non-owner occupied.

You'd then get a new residential mortgage, pay less in fees and have the benefit of living in your new home immediately.

You've also got a much better chance of a mortgage which is free of early repayment penalties, which will be useful for paying off a big lump sum when your current property sells.

Thanks for that, there are two reasons I hadn't considered that - firstly I had assumed the worst and that renting out our current property would be really difficult and involve going onto a higher rate of interest (currently 1.6%).

The second is that whilst I have enough cash to put down a deposit on a BTL, I don't have enough to get a residential, so would then possibly be in a position of having to remortgage the house I want to sell to pull out some equity. I'll put rough figures in the next post -thank you for your help though!

MoneyJuggler

herbiesjp wrote: »

What are the figures on the first property i.e. value, mortgage amount, expected rental income, mortgage payment?

What are the same figures for the second property (not mortgage payment though)?

What are your incomes? Any other debts? Any children? Good credit history?

You can do either way, assuming the scenario allows you, hence the questions.

Thanks for your reply -rough figs are :-

current home :- possible rental would be probably be pcm,mgtge £(!)

New House, and possible BTL -£

Incomes approx , good credit history (no blemishes at all, plenty of borrowing/repayments over last 15 yrs) on CC, but most at 0% until 2012, and have enough savings to pay all of them off if necessary.

The possible idea being once we sold our house that we live in,after renting the new one out, we could then transfer our residential mortgage to buy the BTL er.. from ourselves...

I know there would be a lot of fees here as well probably, so might not be viable just from that point of view.

Thank you very much for your help, I do feel like I'm missing something, so appreciate some objectivity!

Thrugelmir

A few observations.

You won't be able to transfer your mortgage to the new property at a later date. The transfer will need to be effected at the point of purchase. (The downside would be that you wouldn't be able to get a 75% BTL mortgage of £318k on your existing property).

It appears that your current mortgage is on interest only. You may well need to show to your lender that you have a repayment vehicle in place to repay the capital debt.

The rental on the BTL mortgage needs to be 125% of mortgage interest. At say a 5% interest rate on £318k borrowed that's a close call. Some BTL lenders also base their calculation on a higher notional interest rate than this.

The cc debt will impact affordability calculations even if some is interest free.

herbiesjp

Why do you want to keep/port your current deal? Is it a good rate - are you tied in?

If you do want to port, you have to do so now, when you buy the property.

The 18k in cards will affect affordability a great deal. Irrespective of the 0% rate, lenders will calculate affordability on the basis of a 3% or 5% payment to the cards each month. If you could clear and still have the 25% deposit for the new purchase that would be better in terms of maximising affordability. 3 children will again reduce your mortgage potential in the eyes of lenders.

So you could look to remortgage your current property onto a BTL with no ties at all - which should be doable. You may even be able to raise some extra from this property now, in order to reduce the mortgage on your main residence.

Then once you have found a buyer, you can then sell at any time, as there are no tie-ins and no penalties.

You can then port your current mortgage onto the new property - that is assuming the lender will agree to it. Porting is treated like a brand new application, and if your circumstances have changed and/or lender policy has changed and you now do not meet current lending policy/affordability, they will not agree the porting which means having to look for a new lender.

You should get a good whole of market adviser to look at the scenario for you asap, to make sure that what you want to do is feasible.

MoneyJuggler

Thrugelmir wrote: »

A few observations.

You won't be able to transfer your mortgage to the new property at a later date. The transfer will need to be effected at the point of purchase. (The downside would be that you wouldn't be able to get a 75% BTL mortgage of £318k on your existing property).

It appears that your current mortgage is on interest only. You may well need to show to your lender that you have a repayment vehicle in place to repay the capital debt.

The rental on the BTL mortgage needs to be 125% of mortgage interest. At say a 5% interest rate on £318k borrowed that's a close call. Some BTL lenders also base their calculation on a higher notional interest rate than this.

The cc debt will impact affordability calculations even if some is interest free.

Thank you, that's very handy advice, appreciated.

MoneyJuggler

herbiesjp wrote: »

Why do you want to keep/port your current deal? Is it a good rate - are you tied in?

If you do want to port, you have to do so now, when you buy the property.

The 18k in cards will affect affordability a great deal. Irrespective of the 0% rate, lenders will calculate affordability on the basis of a 3% or 5% payment to the cards each month. If you could clear and still have the 25% deposit for the new purchase that would be better in terms of maximising affordability. 3 children will again reduce your mortgage potential in the eyes of lenders.

So you could look to remortgage your current property onto a BTL with no ties at all - which should be doable. You may even be able to raise some extra from this property now, in order to reduce the mortgage on your main residence.

Then once you have found a buyer, you can then sell at any time, as there are no tie-ins and no penalties.

You can then port your current mortgage onto the new property - that is assuming the lender will agree to it. Porting is treated like a brand new application, and if your circumstances have changed and/or lender policy has changed and you now do not meet current lending policy/affordability, they will not agree the porting which means having to look for a new lender.

You should get a good whole of market adviser to look at the scenario for you asap, to make sure that what you want to do is feasible.

Many thanks for that -yes, am on a good deal, no tie -ins.

That's great advice re not being able to port residential rate across to BTL at later date , thanks to both you and the poster above for that info -very helpful .

Will also pay down ccs.

That bit of advice has pretty much convinced me to drop the whole plan,so will just hold out and hope to sell ours quickly!

Thanks again.