Letting and Buying advice please

spanv

Hi,
Wondered if anyone could advise...

We have a flat worth £350k and mortgage of £250k.

Next year we are looking to buy my Dad’s house from him for £350k.

I’m wondering if it might be a possibility to let our flat out (income £1200pcm, mortgage if went interest only would be £600pcm.) The flat is in an up-and-coming area of London and fortunately doesn’t seem to have been effected much by the credit crunch so far.... Reasoning behind keeping it would be as an investment. I know there are risks in renting flat / no guarantee of tenants / times may have to pay 2 mortgages. But the research I’ve done into local property market makes me feel this is a risk I’m happy to take.

Few questions...

Are we likely to be able to get a second mortgage? (both self employed but joint income around £70 - 80k pa). Have 5 years accounts.

Would the rental income be taken into account when applying for mortgage for Dad’s house? We’d have min 15% deposit to put down on the £350k.

If we remortgaged current flat, took out some equity and increased deposit for new purchase would this be possible / make sense?


Thank you in advance

dimbo61

Well you first need to find out if your current lender will allow you to rent out the property and give " consent to let "
You only have about 30% equity and most BTL mortgages need 25% equity so You may not be able to borrow more money from your current property to provide a larger deposit for the next property.
You should seek the help and advice of a " whole of market mortgage broker" who deals in BTL mortgages

dimbo61

£250K interest only at 4% is over £800 a month

spanv

Thanks for that Dimbo61

ACG

If your doing a Let to Buy (where your current lender agrees for you to rent out your current property), you will find it more difficult to find a lender to let you buy your dads property.

That being said, it is not impossible. Ive got one going through at the minute where the client has a BTL and a LTB - its the LTB that is causing the issue.

As i said though, so long as it is being rented and you have at the very least a letter from a letting agent sayng you should get £xxx per month you should be fine. You will stand a better chance if you have someone in there for 3 months or so.

holly_hobby

To clear confusion ....

Vacating your main residence, and renting with your lenders knowledge = consent to let

Purchasing/remortgage of a property with the sole intention to let from outset = Buy to Let Mortgage

Vacating your main residence, and seeking a mortgage on a 2nd property which will become your main residence = Let to Buy Mortgage








LTB Mortgage

• Normal status checks & stated income mulitples will apply.
• Rental income over and above that for covering the cost of your mortgage remaining on your flat, possibly may be considered but only as part of your submitted accounts assessment i.e historical. If you need this to achieve the reqd multiples you may struggle without history & prev HMRC returns.
• If your father is gifting your deposit/discounted purchase price (and you don't have sufficient capital of your own to put down) - you will need to seek a lender who is happy to accept this & the presence of your first property.
• There is a further issue with the above re provison of long term care & IHT issues (especially if your Dad intends to remain resident in the property with you post sale - seek advice from your accountant.

As a side issue, you may not need an actual Let to Buy mortgage - I had a situation whereby I had one property which was my main residence, but I was moving to another - and renting the first out.

I effected my 2nd mge with Intelligent Finance - who were happy to completely ignore property no1, who were aware there was a mge on there, and did not require any evidence of rental income covering the first mge etc...


Their only requriement was that I met their status & affordability checks reqd for the property I was to live in as my main residence - and on which their mge would be secured.

This was a couple of yrs ago, and we have since had the fallout - so things may well have changed, and only a LTB mortgage provider will consider this situation.

But it may be worth a phone call or 2 to your existing lender, and others just pitching this to them, and it may avoid having to seek a specialist LTB mortgage - and maybe a better morgage product. (although as I say I in the current climate a specific LTB lender and mge may be the only route for the pch of your fathers home)

I am currently not involved in the placement of mortgages (I consult on compliance), so can't give you a current panel list of LTB lenders who are operating, one of the active mortage advisers should be able to do this.

Don't forget you will need to declare rental income to HMRC, and that on disposal/sale of your BTL property there will be CGT liability (which may be offset (reduced) by any remaining annual allowances at the time of sale, and further offset in relation to the period your property was held on owner occupier status).

As stated above, there may well be IHT and Long Term care issues (in respect of Dad)that you may need to make provision for, following your Fathers disposal/sale of his (main ?) home to you - I won't go into them here - but your accountant shoudl be able to advise.

Hope this helps give some ideas

Holly