Can I use my income to apply for a mortgage for my wife?

whiskywhisky

Hi

Apologies if this is a really silly question and after the new year I will visit a mortgage adviser.

Anyway I am employed and my wife is a housewife, with no income. I would like to purchase a 2nd property for investment purposes and most likely rent out for years and hopefully if prices go up then sell.

As I will be at work my wife will do all the tenant management stuff (i.e. contracts, rent collection, getting maintenance people etc). Can I use my income to get a mortgage (will be using a 75% ltv) but have the house 100% in my wifes name? This will also mean my wife has an income and will benefit us when declaring for tax purposes.

Thanks

betmunch

That would have been a really silly question had you been talking about a residential mortgage.

However, you are not, you need a Buy To Let mortgage. This will not be a problem, subject to all the usual credit checks and stuff.

Dont worry about the mortgage, the adviser you plan to visit will sort this out without a problem.

whiskywhisky

betmunch - thanks.

Yep BTL mortgage.

So this will be easily done? will I need to be some sort of guarantor for the mortgage? just wondering how a lender can give a mortgage to someone who has no current income and will eventually have a small income.

betmunch

its a commercial transaction, the level of mortgage available is set by the expected rental income from the property.

Most lenders will require the applicant to have a set level of income in case of void or repairs, but not all of them do.

A decent broker will place you with one that doesnt.

Wh05apk

The only problem being that most BTL lenders require the applicant to earn a minimum income, usually £25k, so if your wife does not have any income it will severely restrict your choice of lender.

You may actually do better doing the mortgage in joint names, yes you will pay tax on your half of the profit, but that will be relatively small, by doing in joint names, you can both use your capital gains exemption when you sell, hopefully at a profit later, the benefit of which, could outweigh any tax you pay on the profit over the next few years.

whiskywhisky

Wh05apk - thanks.

Yes that is also revolving around my head - the capital gains exemption.

holly_hobby

Most lenders have a min earned income ( but 2), but there does have to be declared earned income of some sort (whether the lender checks or not), unless you are a portfolio landlord.

Irrespective of this, the rental income will also need to be 125% of the mortgage payment (which may be interest only or capital and interest), and will be assessed by the surveyor during his survey. This is to show that the property is effectively self funding.

So, in this case you will have to be party to the mortgage with Mrs Whiskey to satisfy the earned income requirement - I assume the reason for the requirement of a single app for Mrs W. is for tax mitigation reasons.

If so, there is an easy solution, and it should be noted that you do not have to split the gains (for income tax or CGT) from the property for HMRC equally i.e 50% each - far from it (unless the property is held as joint tenants).

To this end you purchase the property as Tenants In Common (which means you can hold it in unequal shares).

Further to which, and as a married couple, you may elect via HMRC Form 17, to hold beneficial ownership under the property (and its gains)for HMRC purposes, under the same unequal shares.

In this case it would hold be beneficial for Mrs W to hold the higher share as she is currently a non tax payer, and therefore it may be wise to fully utilise her personal allowance, with anything over this amount subject to basic rate tax (or higher depending on total annual income of course). i.e you may wish to hold it as 99-1, 80-20 or whatever works best for your circs.

The application of CGT to beneficial owners would also be apportioned under the same share ratio - you each have an annual CGT allowance which may be applied to any gain, and anyting over this is subject to tax. Your CGT allowance allowance is the same amount for all - this is irrespective of whether you are a tax payer or not - so just be aware or this when you make the nominiation on the beneficial property ownership - as anything in excess of the CGT annual (and other applicable allowances/reliefs) will be subject to tax for that individual.

Which is why you should be aware that once you have nominated to HMRC the split, this is not easily amendable, unless the actual % share of the property also changes under the deeds. (which may be subject to fees)

Its an easy arrangement to effect, and an experienced whole of market broker will be able to guide you through this, or indeed your Solicitior - I have attached HMRC Form 17 for your ref - which you may complete yourself, or print off an take to your financial or legal rep for assistance (following nomination). http://www.hmrc.gov.uk/forms/form17.pdf

Apart from the income tax and application side of things, do make sure you fully consider this before you jump in. There are a lot or responsibilites both financially and with yourself, that comes with being a landlord.

Research your market, the tenants you want to attract, average rents for similiar properties etc ....

You should ensure that you have an emergency provision fund for times when you have no tenant (but still the mge to find !), damages, and repairs, management fees, etc .... the list goes on ... !!

Also, you need to consider that property is pretty ill-liquid and may not be easily disposed off in times when you need your capital out fast - so do consider how you will manage any unforseen expenses (personally or with the BTL itself).

It is after all a business, and can work wonderfully well, or be an absolute money pit and cause of endless tears .... please do tread carefully ...

Hope this helps

Holly

whiskywhisky

Holly - thanks, much appreciated.