Buy to let mortgage may be a no go - how do I best raise the money...

Lolstoo

I am buying a house with my partner and we planned to buy it outright.

I was funding my half with a big lump sum + I figured I could raise the rest (around £60K) against my flat on a buy to let mortgage (currently owned outright and worth conservatively £150K). I can rent the flat out at £650pcm (already have a tenant on stand by). My partner has his half in full just sitting there.

However I have just discovered there is a clause saying officially I cannot rent my flat out although the flat above me has been rented out for the last 10 years or so on and off. I know my neighbours would be fine about me getting a tenant in as I run the management committee etc.

I figure now I would be turned down on a buy to let mortgage because of this clause?

What would be my best course of action - should I try to get a bank loan against the flat (I can reduce how much I need to borrow to around £50K at a push). I understand a standard mortgage would be out of the question as I want to rent the flat out...

I do have an income of around £30K a year and accounts to back this up.

Any thoughts - really would appreciate some guidance....
Lauren

KRB2725

Why not take out the mortage against the new property. I know it is not want you wanted to do, but it seems the simplest solution? You will still have a 60k mortgage, so the net result is the same.

Lolstoo

Hi MSC, if we took out the mortgage on the new house as it is joint names it would have to be for both of us, they wouldn't let me take out the mortgage on our own.
Also we have told the people whose house we are buying that it is a cash purchase and as we got a great price do not want to upset them at all.

DVardysShadow

Lolstoo wrote: »

Hi MSC, if we took out the mortgage on the new house as it is joint names it would have to be for both of us, they wouldn't let me take out the mortgage on our own. [1]
Also we have told the people whose house we are buying that it is a cash purchase and as we got a great price do not want to upset them at all.[2]

[1] take the mortgage in joint names - which reduces your partner's equity - and make up the equity by transfer of a portion of your flat
[2] you'll upset them a good deal more if you try sorting this out without a mortgage and then have to 'fess up. Essentially, the fact that you have to get a BTL mortgage means that you are NOT the cash purchasers you make yourselves out to be. So best to 'fess up now that you need mortgage finance and your plans have changed.

Lolstoo

Hi DVardysShadow, I wasn't meaning to pull the wool over anyone's eyes and effectively I can raise the money from elsewhere however in an ideal world I am looking to raise it against the flat if possible.

If needs be I can raise a bit more and my partner can chip in more up to the price we have offered but I was hoping not to have to do it that way if possible.

I was looking for ideas on raising it against the flat or myself and hoped someone on the boards might have some ideas!

Lauren

DVardysShadow

Lolstoo wrote: »

... I was looking for ideas on raising it against the flat or myself and hoped someone on the boards might have some ideas!

AFAICS, it is only embarrassment which stops you from raising it on the new place. The new place is the only sensible option here - anything else and you are jumping through hoops and paying over the odds just to save face with your sellers.

Now, if you are only out to save face, perhaps you could consider some sort of bridging finance till the sale is completed and then take out a mortgage on the new place. This may be expensive in the short term, but will probably break even against a BTL mortgage on your flat very quickly.

Me, I would 'fess up and explain that the BTL mortgage has hit a snag, so you want to mortgage the one you are buying as the best way forward. 2 times your income will fine - it will be better on joint incomes, you have lots of equity personally and the LTV will be no problem. Unless you or your partner have a poor credit record, this will be the best option to get your finance in place quickly, which must be your shared objective with your vendors.

The longer you spend on plans for saving face, the more you will justify your vendors becoming annoyed.

anselld

It will also be cheaper to get a residential mortgage and if you can demonstrate that the money raised has directly funded the creation of the letting business (ie the flat) it is still tax deductible against the rental income.

Lolstoo

Anselld thanks for that, surprised it would still be tax deductible but very interesting, will pursue with my accountant

DVardysShadow - not sure what AFAICS means or even if I should ask :-)

Anyway just to give an update, probably not strictly legit but I told my mortgage broker about the not able to rent clause and they have advised they will pursue a residential mortgage against my flat as my earnings will enable me to obtain the mortgage and he thinks that will be okay. Fingers crossed that he is right, he expects based on the information I have provided it will take around 2 weeks.

Thanks for the input

DVardysShadow

Lolstoo wrote: »

Anselld thanks for that, surprised it would still be tax deductible but very interesting, will pursue with my accountant

DVardysShadow - not sure what AFAICS means or even if I should ask :-)

Anyway just to give an update, probably not strictly legit but I told my mortgage broker about the not able to rent clause and they have advised they will pursue a residential mortgage against my flat as my earnings will enable me to obtain the mortgage and he thinks that will be okay. Fingers crossed that he is right, he expects based on the information I have provided it will take around 2 weeks.

Thanks for the input

AsFarAsICanSee. I suppose you thought I was being offensive.

The drawback with a residential mortgage is that if it goes for repo, your tenants are evicted with 2 months notice, rather than being allowed to continue their term.

Now, you may say "I am not going to be repo'd, so it does not matter". But it is quite a big concern for tenants. And good tenants for good properties are more likely to ask if you have Lender's permission. If you don't, you are going to make these potential tenants think you have something to hide - which you do, but not necessarily what they might think.

Now, another way around this is back to my bridging finance idea - if your finances are robust enough in the short term. I would suggest that you continue with a residential mortgage on your first property and buy the second, mortgage free. Don't let it out for the moment.

Next, complete on the second property. Then take a mortgage on it, pay off the first property and start letting.

Lolstoo

DVardysShadow, didn't think it was offensive just had no idea what it meant, now I know!

It isn't going to be repossessed but I can see where you are coming from - will chat to my mortgage provider and get his advice.

Thanks again....