Mortgage on second property - not really BTL

mio_2

Looking for some advice on remortgaging a second property.

We have 1 property which is our main home, on which we have a residential mortgage (repayment basis). We also have a second property which our daughter lives in, along with a flatmate (both of whom pay some rent). We stay there quite regularly too (eg my partner often works in the area). This property also has a residential mortgage (interest-only), however the fixed rate has expired and we are looking to remortgage. We have around 35% equity in the property but we are looking to release some of this in the remortgage.

Recent enquiries on remortgaging suggest that many lenders would now not offer a remortgage on this second property (we had no issues the last couple of times we remortgaged but seemingly things have changed in the last few years). Looking for advice on: (1) which lenders would now offer a mortgage in principle for this second property and (2) whether this would be on a "residential" or "buy to let" basis. It is not truly a buy to let in our view for the reasons above. If it has to be a buy to let mortgage, then would lenders be looking at the actual rent received or the rent achievable on the open market (we do not charge the full market value at present).?

Any advice much appreciated.

holly_hobby

2nd properties - your income needs to be sufficient to service both mortgages and all other commitments. Anyone over 17 residing in the properties, whom are not party to the mge, will need to sign a consent to vacate agreement (agreement to vacate the property upon the lenders request).

If your income is not sufficient to service both mges & commitments (which is why maybe you have been advised you are now no longer eligible for a straight 2nd mge), than BTL would be the way to go.

Technically this isn't a stretch on truth, as your property is in effect rented - to your daughter & an unrelated 3rd pty, and you do receive rental income.

BTL rates are not as attractive as straight residential rates (for commericial reasons) - so your paying rate may be higher than you have previously enjoyed.

There are various BTL lenders in the market place - the ones with the highest LTVs are
85% Kensington Mortgages & 80% LTV The Mortgage Works

Affordability, achieveable rental income (as assessed by the surveyor as part of their property survey)needs to be 125% of the mge rate ( use 6% as a ball park rate) - whether you privately charge this is up to you - but if you don't , ensure that your own income is sufficient (with the rental income you receive) to comfortably service the mge.

Kensington - 25k min income (in addition to rental assessment)
The Mortgage Works - don't request income details (but reserve the right to do so)

Obv you will also have legals fees (although you may touch for a fee free BTL remortgage) and you may have to produce evidence of an AST (assured short hold tenancy) to the lender. Some lenders from experience, also want the rental managed by an ARLA letting agt - this is by no means a standard requirement, but mentioned for info purposes. If an AST is reqd - don't fret - easy to get one drawn up by a solicitor or letting agt - for a fee or course !

Should you go the BTL route - don't forget that you should be declaring if not already doing so (net) rental income for income tax purposes (even if no income tax due - it still has to be be declared).

This is advised within your annual self assessment if your net profit exceeds £2,500, or you do not receive income via PAYE.

It sounds from your comments, that you charge a minimal rent from your daughter & flat mate - if the net rental income recd is under £2,500 threshold, and you are an employee payable under PAYE (or in receipt of a pension through PAYE system), you may apply each year (via HMRC - completion of form P810) to have your tax code amended to collect any rental income tax due under your PAYE code.

The allowable deductions from gross rental income are generally mge interest, maintenance costs and letting (i.e agent) fees (list not exhaustive but showing main deductions), further to which other deductions may be allowable such as costs of improvements, renovations etc .... again this is not exhaustive a full list may be obtained from HMRC - as I say have a google to get an idea.

Of course you will also be aware that upon sale of the property you will be subject to CGT on any gain realised, less allowable deductions such as annual unused CGT allowance, and lettings relief.

So there are your options, suggest speaking to an experiened whole of market broker, who should be able to source the best lender & products available for your requirements - but hope this gives you an idea of where to start and whats what.

Holly

mio_2

Many thanks for the detailed info. Actually when I enquired with some lenders recently, I did not even get as far as the detailed financials, several just said they would not lend on a second ppty, regardless of our financial circumstances (we are more than able to cover both mortgages).

They also said it would not even qualify as BTL as we had a family member living there. Our preference would be to stick with a residential mortgage if possible, but would just like to know which, if any, lenders, would still lend on a second property like this.

holly_hobby

Unfortunately, I am currently not involved in the placement of mortgages ( my role is now more regulatory), so can't off the top of my head give definate lenders who will accept 2nd properties.

If your income is sufficient to cover both mges & all commitments (and you meet std status checks), with sufficient equity to meet the lenders criteria on 2nd props, which is typically 75% - I cant see what the issue is.

But, if the lenders who you have approached yourself (where they high street i.e Halifax, et al ?), have said no, strictly on the fact its a 2nd property, I would suggest that you have a chat with a whole of market broker. They will have/should have the market knowledge of who is happy to accept 2nd property borrowing & their terms - as I say I don't know why there are issues if affordability and clear status has been demonstrated.

With regards to the BTL and family member - I would argue not strictly accurate, as there is an unrelated 3rd pty in the flat too (flat mate) - and you have said that your daughter & FM do pay rent (albeit lower then if they were unrelated). Further to which if your income is sufficient (as you now confirm), to service both mges, the tenant & rent situation should not be a major deciding factor in the BTL scenerio, as your income is sufficient. (but then if your income is sufficient, there really is no reason why you can not go the straight 2nd property route).

Anyhoo, as you say, your income is sufficient to meet both mges, so I would present this as a straight buying a 2nd property for your daugther to live in - which means that unlike traditional 2nd properties, there are no periods of extended unoccupancy as it is in effect your daughters main residence.

Whole of market broker (check if there is a fee) is your next step.

Hope this helps

Holly

getmore4less

Look at the bigger picture

What are the 2 mortgages size,rates(cuurent and followons),terms.

Income multiple on the total.

there may be other options than trying to remortgage the 2nd home.

how much are you trying to raise and whats it for?



What are you doing about the tax situation on the rental income?

holly_hobby

getmore4less wrote: »

What are you doing about the tax situation on the rental income?

CGT and tax on rental income already covered in earlier post

Holly

mio_2

Tax is covered thanks.

I did speak to a whole of market broker and they said they could not find any lender willing to lend a residential mortgage on a second property. I thought this could not be right, hence the question to the forum.

mio_2

getmore4less wrote: »

Look at the bigger picture

What are the 2 mortgages size,rates(cuurent and followons),terms.

Income multiple on the total.

there may be other options than trying to remortgage the 2nd home.

how much are you trying to raise and whats it for?

We are quite happy with the mortgage on our main home (and it is fixed rate so not really looking to change that right now). But open to any great ideas here. Essentially we just want to improve our mortgage rate on 2nd property and release a little equity if possible

holly_hobby

mio wrote: »

Tax is covered thanks.

I did speak to a whole of market broker and they said they could not find any lender willing to lend a residential mortgage on a second property. I thought this could not be right, hence the question to the forum.

That can't be right - 65% LTV and sufficient income to service all commitments .....!!!

Without knowing your protection and FS requirements - would the placement of the mge via the broker have resulted in him writing any additional FS or general business i.e term assurance, pension, b&c etc ... if not I suspect he thought the lender proc fee (if he didn't charge a fee) simply wasn't sufficient to quantify the time spent in writing and supporting the app - hence came up with a reason why he/she could not assist you.

Please existing brokers on site don't jump down my throat for saying that .... I by no means tar all our industry advisers with such tactics (I'm on your side), but I do speak from professional experience.

As I say I currently out of mge placment, an active adviser on the forum should be able to give you a good idea who is in the market for 2nd properties. Maybe you could give a couple a nudge to have a look at your thread.


Hope this helps

Holly

getmore4less

mio wrote: »

We are quite happy with the mortgage on our main home (and it is fixed rate so not really looking to change that right now). But open to any great ideas here. Essentially we just want to improve our mortgage rate on 2nd property and release a little equity if possible

what rate is it.

how much more do you want what LTV wiithat take you to.

you still have not said what your total lending is or income being use to support this.

cinnamon71

It's certainly possible to get a 2nd residential mortgage, I did so recently under similar circumstances (letting to a family member and wanting to withdraw equity on remortgage)

But from your op there are two potential problems:


1) your current 2nd mortgage is on interest only basis, it's going to be very difficult to get a 2nd residential on I/O consider moving to a repayment mortgage will make it a lot easier.


2) the equity withdrawal, whats it for and how much is the LTV increasing to? I found it difficult to find a lender that would consider equity withdrawal for any reason other than a house purchase or house improvements. If your LTV is going to increase to 75% or more then I don't think you stand much chance.


I sucessfully remortgaged with Cheltenham & Gloucester it was a slow process & the underwriters were very, very thorough though!