mortgage advice

Paulcumbria

Hi,
We currently own our own home outright and its currently worth 270k. We are looking at a new house for 380k but wish to keep our current house to use as rental property. We have a 60k deposit so would be looking at a mortgage of 320k (ish). This is obviously a poor LTV, do we have any option of releasing equity from our current property to reduce the LTV?

The expected rental income is £550-£700 p/m (conservative figures) on top of our combined salary.

What do people suggest in this scenario?

Many thanks

Paul

holly_hobby

Yes you may remortgage (release equity from prop no 1 to fund prop no 2), subject to conditions.

This will need to be on a BTL mortgage (when did you redeem the mortgage on prop no 1 ?). If over 12 mths ago, you will probably be classed for mge purposes as a FTB (as you have no current or recent mortgage for assesment).

You will also be first time landlords - which further restricts the suitable lenders.

Notwithstanding the above, the rental income on prop on 1 will have to generally be 125% of your mortgage repayments (although there is a lender who accepts 120%), you shall generally have to haave earned income of 25k+, and no adverse credit.

Rental figs given - upper level quoted of £700 pm rental inc = £560 pm interest only mortgage (simple calc of 560 x 125%). If you elect to effect the mortgage on capital and interest obv the reqd figs will increase, as the mge repayment figure will also incorporate capital repayment).

I would suggest that you have a chat with a whole of market adviser, whom will be able to source the most suitable lenders and producgts to fit your requirements.

You shall also have to apply for self assessment (if not already using this facility) for payment of (net of allowances) tax due on rental income.

You will need a fund put (to service the mortgage) for times when you have no tenants in place, and also a fund for general maintenance & service costs.

Landlords B&C policy will be required (as your standard residential policy will be invalidated upon property rental).

And the tenancy should be effected under an Assured Shorthold Tenancy agreement (6 mth durations).

As first time landlords, I would suggest employing the svcs of an ARLA letting agt at least for the first 6 mths, until you get the hang of how it all operates - they will obtain tenant refs, create an invantory, conduct periodic property inspections, collect and safely hold deposit, collect rent , and other management issues you require (this list is not exhaustive).

Letting a property can be a great business venture, or one hell of a headache, please think carefully before you jump in. There is a great sticky giving indepth advice on this, which I suggest you have a quick read of.

Hope this helps

Holly