100% mortgage + renter + want to sell

skywalker1

Hi all, I wonder if anyone out there could offer some advice on the best cause of action for my particular situation.

As mentioned in a recent other post, my girlfriend currently has a 100% mortgage on a 1 bed flat that she has owned for about 6 years. The mortgage is at 72k, and is worth around that still.

She has rented it out for the past couple of years, and the mortgage company has allowed her to do this. Obviously the time will come soon where she can no longer keep it as it is, and will need to move to a buy to let mortgage. (She currently is only on about 1.5% interest, as it's been on a tracker for a few years.)

As we are looking at buying our first place together, using the equity in my own home for around a 25% deposit, she wants to get rid of the flat.
The problem is, she doesn't have much money and can't afford negative equity on the sale. (touch and go whether than would happen based on price today vs. 6 years ago)

The costs are obviously expensive for a buy to let mortgage - would the mortgage company even let her port it over to this, based on the 100% factor? As it's only a 1 bed flat, the income isn't massive from the rental.

We want to lose this weight of the flat ideally, and don't want it to be a stumbling block for our new purchase - but can't really see what our best options are - kick the tenant out when their contract ends, and hope to sell it without negative equity? Or stump up the cost for buy to let - if it's even possible.

Sorry for the long post, I hope someone has some experience of this and can offer a word or two of direction.

holly_hobby

Max BTL is 80% - with rental income 125% of mge payments (which may be interest only) - so there is no chance of achieving a BTL mge on your current figs.

So, I would either sell and cross my fingers, or sit tight where you are and wait for the market to recoup (which may never completely erode the neg equity issue but may reduce it).

Sorry ... but hope this helps clear what options are available.

Holly

Wh05apk

If she is paying 1 1/2 % interest, interest only would be about £80pm, presumably she would be on repayment so should have eaten into the mortgage slightly, so would be surprised if she is still in negative equity?

skywalker1

thank you holly, informative.

When the period ends where she isn't allowed to rent out any more under a personal mortgage (I think she got it extended successfully for another year actually), I guess the mortgage company would make you pick - stump up the costs, or stop renting out the property.

If we bought our new property after selling mine, and she continued to rent out for that window where she wasn't made to choose buy to let - if her name is applied as a joint holder on our new house, would that make a difference/tip the balance on the flat mortgage? As in, clearly it's a second home and not just a temporary moved away measure (which is the gist of the story given so far to the mortgage company.)

Another option is I buy the new home under my own name solely, if that's the case (as the equity and figures works with just me buying fine.) But then add her name on sometime later, when the flat has sold?

We're not rushing into anything just yet, but just in the new year we'd like to think about getting somewhere bigger

skywalker1

Regards the repayment - you are right in the figures, sadly she has only ever paid interest only!

Over the 6 years she has had central heating and double glazing fitted, so theoretically a better property than originally, just not sure if its actually worth any more still.

It's not that it's definitely in negative, it's just in today's market, it could well end up selling for a little less.

Thrugelmir

Sell your property. Then move into the flay for a while and save money.

With an interest rate of 1.5% its cheap living.

skywalker1

my own house is on the same interest rate
Besides, we wouldn't fit in her 1 bed....!

holly_hobby

Her mortgage application with you, should be on a let to buy basis, which in a nutshell means your joint lender will effectively ignore your partners existing mortgage for affordability calculation purposes. (they may require sight of the AST and proof that her current lender is aware the property is let).


When the time comes (and if you elect not to sell the flat), speak to a whole of market adviser to source a suitable Let To Buy Lender and product.

Hope this helps

Holly

skywalker1

thanks Holly - forgive my ignorance, but what's a 'let to buy' mortgage? Is that a buy to let?
The new mortgage would be for a house we both live in together, under joint names, but something drawn up to protect my big deposit as being mine if we sold.

...I've just googled AST so sorted on that bit

Wh05apk

skywalker1 wrote: »

thanks Holly - forgive my ignorance, but what's a 'let to buy' mortgage? Is that a buy to let?
The new mortgage would be for a house we both live in together, under joint names, but something drawn up to protect my big deposit as being mine if we sold.

"Let to buy" is something you don't need, your new mortgage will be a straight residential mortgage, a "let to buy" mortgage is generally a description for a mortgage on a property which is/will be let out, and the funds used as deposit on a residential property.