Second homes

Jessikita1983

This is a little far in the future, but I like to plan ahead - can anyone help me with these questions. (I know no one has a crystal ball, but would just like some general info)

(bear in mind I will use today's house values, but it will all be relative to whatever price in the future hopefully)
Firstly a brief outline:

I currently own a 3 bed house worth approx £90k. The long term plan is to pay off the mortgage (about 3 years off) in full, rent this house out and buy another house for around £150k.

I would have to live in this house up to the point I move to my new home, then I would need a few weeks to paint and get a few things ready for it to be rented out, so the mortgage etc for the new place would already have to be in place.

Would a potential mortgage company recognise the potential rent (£500 a month) as income, as I wouldn't have earned anything on it yet? (this would not be too much of a problem, for it not to be taken into account, just wondered)

The new mortgage would effectively be 100% against the property, and these are generally not available anymore, so would there be a way around this? I.e. I would have £90k worth of value in my current house, could this be used in way as a deposit? Is this possible, or would it be better to remortgage my current home for 20% of the value of the new house, and use this as a deposit on the new house and get an 80% LTV mortgage? So pay 80% LTV on my new house and a remaining 20% LTV mortgage on my house to be rented.

In an idea world I would live mortgage free for a couple of years to save 20% for my new house, but wanted to progress asap.

Hopefully this all makes sense.

Any advice or construction opinions welcomed.

holly_hobby

(without consulting a crystal ball ... )

There are no traditional 100% mges about (ie without family gtes, and charges on family members property), and certainly not for a 2nd property purchase, but who knows in a few yrs what market forces bring, so for now lets assume (due to the current economic status we find ourselves in) that this won't be an available option to you.

Regarding using rental income as part of income assessment on main residence mortgage - the only lender I am aware of who currently looks at this is Nationwide BS (without requirement of accounts/HMRC proof of historical rental income). The let property must be unencumbered (mortgage free), and they will take a proportion (not all) of the proven rental income as part of their affordability assessment.

Other than that, as a first time/non portfolio landlord, the rental income won't be used as part of the affordability assessment on your main res mortgage.

If you choose to raise some capital from your property to be let (for your deposit on you new main res), than you disqualify yourself from the Nationwide (current) criteria re rental income.

In that case, and in general, as long as the rental income is 125% of the mge, you may secure a buy to let remortgage on your let property, to release sufficient equity (subject to conditions) to reduce the reqd mortgage on you main res, to a sum which fits with your earned income and the lenders affordability assessment. (which on a let to buy mortgage, will ignore the property you intend to let).

Of course I can only base this guidance on today's known criteria - which may change accordingly between now and your application. (of course there may be other lenders whom have similar criteria at that time too).

If you need to take the rental income to support your own residential borrowing, I do fear for you if you find yourself without a tenant (and no rental income), the property needs maintenance/repairs and other emergency costs that you need a contingency fund for.

Letting a property can be rewarding (financially), but on the turn of a dice become a nightmare and money pit. You need to consider how you will manage financially for the downtimes, and ensure that you consider the rental market in the area, achieveable rents, general costs of letting, and how you will cope when there is no rental income (especially for extended periods - which is quite possible in an over saturated market).

Do lots of research before you make a final decision ... and at that time seek the assistance of a whole of market broker, whom will not only source the most suitable lenders and mortgage products, but support you throughout the whole application process. (there may be a fee for the service).

Hope this helps

Holly

Jessikita1983

Hello, many thanks for your advice. I wouldn't need the rental income, my salary is ok to cover £150k (working on 3 x my income) I just wondered if they would recognise the rent out of curiosity.

CLAPTON

you can't get a100% mortgage at the moment and hopefully not in the future either.

so there is no point in paying off your currrent mortgage; better to save the money as a deposit for the new house

then get a BTL mortgage for the current property and a new residential mortgage for next home using savings plus equity release as the deposit.

Jessikita1983

Thanks Clapton, it is against my nature to save when I have a debt costing me more that the savings rates (all good Martin advice) but if this is long term best thing for me to buy another house I will recondition myself!

I just find it annoying, as although technically it would be 100% LTV mortgage, I would have £90k in another property to back me up!

holly_hobby

CLAPTON wrote: »

you can't get a100% mortgage at the moment and hopefully not in the future either.

so there is no point in paying off your currrent mortgage; better to save the money as a deposit for the new house

then get a BTL mortgage for the current property and a new residential mortgage for next home using savings plus equity release as the deposit.

There are 100% mortgages about (3 providers in the Uk), but they are restrictive in various ways, and won't fit for a 2nd property purchase scenerio.

Hope this helps

Holly

Thrugelmir

Jessikita1983 wrote: »

The new mortgage would effectively be 100% against the property, and these are generally not available anymore, so would there be a way around this? I.e. I would have £90k worth of value in my current house, could this be used in way as a deposit? Is this possible, or would it be better to remortgage my current home for 20% of the value of the new house, and use this as a deposit on the new house and get an 80% LTV mortgage? So pay 80% LTV on my new house and a remaining 20% LTV mortgage on my house to be rented.

In an idea world I would live mortgage free for a couple of years to save 20% for my new house, but wanted to progress asap.

Hopefully this all makes sense.

Any advice or construction opinions welcomed.

A concept that worked for some in the boom credit years. When house prices were spiralling upwards. Those days of financial engineering are over.

There is no quick way to getting rich. Requires either a stroke of good fortune or bloody hard work.

Jessikita1983

Thrugelmir wrote: »

A concept that worked for some in the boom credit years. When house prices were spiralling upwards. Those days of financial engineering are over.

There is no quick way to getting rich. Requires either a stroke of good fortune or bloody hard work.

Many thanks for you opinion, not looking to get rich, just secure my long term future and I feel I am better long term to invest in property.:o

Thrugelmir

Jessikita1983 wrote: »

Many thanks for you opinion, not looking to get rich, just secure my long term future and I feel I am better long term to invest in property.:o

Then the rental income should be an important part of your thinking. As a successful business generates a profit.

Without a profit the property won't generate cash in order to repay the mortgage.

Jessikita1983

Thrugelmir wrote: »

Then the rental income should be an important part of your thinking. As a successful business generates a profit.

Without a profit the property won't generate cash in order to repay the mortgage.

Thank you. Effectively house 1's mortgage will be paid in full and house 2 will be my home that I will be able to afford to pay the mortgage on wages alone. I will not be relying on the rental income for house 1 to subsidise house 2 mortgage payments.

So looking at £500 a month rent off house 1, I have read all the guides on putting money buy for vacant periods, maintence etc.:)