Combining two mortgages, porting and self-employed...

seamus1981

Hi there,

Looking for some advice for a bit of a complex mortgage situation.

My partner and I have two properties and two separate mortgages as follows:

Property 1:
Outstanding mortgage of £85,000 (property value: c£105k)
Lifetime tracker of 1.39% (+0.89% above base rate)
Currently have consent to let from Lender 1 (HSBC), and a tenant in the property, with rent about 1.7x the mortgage payment
Although this is a good situation, the consent to let won't last forever and moving this mortgage onto a buy to let rate would change the picture quite a bit.
This mortgage is in my sole name and the monthly repayment is £320.



Property 2:
Outstanding mortgage of £140,000 (property value: c£300k)
Variable rate of 4% with Lender 2 (RBS)
This mortgage/property are in the sole name of my partner. We live together in this house. The monthly repayment is £700.

We'd like to improve the mortgage rate on Property 2, but my partner has become self-employed in the last few months and so we suspect that a lack of history of accounts etc would make it pretty impossible to move products. Hence this mortgage has rolled onto the variable rate after her fixed rate finished recently. Actual affordability isn't an issue due to savings and my income.


Here's where it gets complicated!
We've been trying to think of ways to combine both outstanding mortgages of £85k + £140k = £225k and remortgage Property 2 to this level (about 75% LTV).
This would mean that all of our mortgaged debt is against Property 2 and as such we'd own Property 1 outright (removing the issue of needing consent to let for much longer and allowing us to keep receiving that rental income).

We have an idea but I don't know how feasible it is...

- Port mortgage 1 of £85k @ 1.39% to Property 2, increasing it then to £225k to cover mortgage 2 as well (I understand the difference of £140k would be at a higher interest rate which I think would be 2.49%). This would result in combined mortgage payment of about £900 per month.

- Although this is only a saving of £120 per month, it would leave Property 1 with no mortgage which is one of our aims (but we wouldn't have sold it, this may make porting with HSBC more difficult?)

- Property 2 would have to be put into joint names, but the mortgage would be based on my sole income due to my partner being self-employed. I dont think this is an issue but if necessary we could decrease the mortgage we need to about £185k by using savings to increase the equity.

Alternatively we may have an option whereby we could look to pay off the mortgage on Property 1 with a mixture of savings and temporary loan from parents, which we would then release back when we re-mortgage Property 2.

Clearly selling Property 1 is an option too but I'm not sure that would happen right now.

Is this all just a bit too complicated?

All thoughts welcome, thank you!!

kingstreet

I think (once again) the concept of porting a rate has been badly explained.

To port a rate, you first have to arrange a new mortgage on a new property. Normally this involves selling the first property to buy another. I've heard anecdotally of lenders allowing a borrower to move a rate on a mortgage during a BTL remortgage, but have never tested this myself...

Property 2 already has a mortgage, so to repay the mortgage on property 1 you'd need to remortgage property 2, or at least get the lender of the current mortgage on property 2 to lend another £85k.

To be honest, it would be helpful if you told us what you are actually trying to achieve, as there is no stated objective of this plan. All I can see is making property one mortgage free, but what that does for you I'm not too sure?

seamus1981

Hi kingstreet,

The aims would be to: (1) remove mortgage from property 1, avoiding BTL issues, (2) improve mortgage rate on property 2 which can't currently be done as it is solely in my partners name and can't be joint for as long as I have a residential mortgage on property 1. But using my income we could improve that. (3) reduce overall monthly payment if possible.
Mortgage free is the ultimate, longer term aim

We could increase the mortgage on property 2 first as you suggest, but as I said, I'm not clear if that's possible while I have mortgage 1

Thanks!

(

kingstreet

seamus1981 wrote: »

Hi kingstreet,

The aims would be to: (1) remove mortgage from property 1, avoiding BTL issues, (2) improve mortgage rate on property 2 which can't currently be done as it is solely in my partners name and can't be joint for as long as I have a residential mortgage on property 1. But using my income we could improve that. (3) reduce overall monthly payment if possible.
Mortgage free is the ultimate, longer term aim

We could increase the mortgage on property 2 first as you suggest, but as I said, I'm not clear if that's possible while I have mortgage 1

Thanks!

(

Is there a reason for that or are you making an assumption?

seamus1981

I guess that's an assumption, I thought you could only have one residential mortgage. But at least the mortgage on property 1 would be considered, reducing the amount we could bOrrow on p2?

kingstreet

Ok. I wasn't sure if you'd been advised of this, or had just made the assumption you've admitted to...

It is possible to have as many residential mortgages as you can afford. In this instance, the plan is to have just one mortgage anyway.

In simple terms, you need to remortgage property two to repay the existing mortgage and raise the funds you need to repay the mortgage on property one. At the same time, you need to do a transfer of equity to make the property jointly owned with your partner. As she's newly self-employed her income is unlikely to be taken into account. Your income would need to be sufficient to cover the whole mortgage. As there will be no mortgage on property 1, you should be able to take into account the rental income it generates to help with the justification of the new mortgage on property two, if you need it.

The rate porting aspects of this situation are a separate matter and it may well be the outcome of discussions with your current lender(s) makes you feel the whole scheme is pointless.

I'd discuss with your lenders and also seek advice from an independent or whole market broker.

Issues to bear in mind;-

- fees and costs v benefits
- stamp duty implications of the transfer of equity (if any)
- a straight audit trail to allow you to claim interest relief against rental income
- your partner's interests in giving you half her property