Buying a second home....

BarryBear83

Hi,

Our current situation is that our home (25 yrs left on a Bradford & Bingley mortgage) is approx £10k in negative equity as we purchased it in during the "boom".

Anyway we're currently saving for a deposit on a second home and wanted to check the following:

Will the negative equity effect us trying to obtain a buy-to-let mortgage? As we're currently on the std variable rate, of 2.5%, I'm not in favour of getting a buy-to-let mortgage of approx 3.5% above base rate and would probably just look at paying the mortgage and leaving the property empty.

If we did't let out our current home (when we purchase the second home) can I complete an annual return claiming for tax relief on any allowable expenses, seeing as you have to complete an annual return if you do let it out. Obviously we'd turn off gas/elec/water etc, inform local authority it empty and then hopefully end up with just the mortgage and insurance as the only expenses relating to this property - therefore might as well look at carrying these "losses" forward in case we ever did rent the property out.

Also would having this first property effect us getting a second property (apart from effecting how much we could borrow as we'd have to show we could afford two mortgages)? and could we get a "first time buyer" mortgage for the purchase of the second property with us not remortgaging?

Any advice welcome!!

hermanmunster_3

well I think FTB mortgages are just for residential mortgages not BTL. Anyone giving a BTL mortgage would expect you to be letting it out - though I suppose if you don't it is up to you. Insuring empty property is not easy and a mortgage company would want to see it insured.

re expenses, I have only let out a second property as a holiday let, then we could claim interest council tax etc etc but only if it was let for so many weeks a year..

WestonDave

You'd be unlikely to get tax relief for business losses if you aren't actually running a business! In any event unless I'm being thick what is the point of foregoing rent which probably amounts to a return of around 5% on the value, in order to pay mortgage interest rates 1% lower? Letting it without consent makes financial sense (hypothetically - you still shouldn't do it!) because you get the rental income and pay less mortgage but what is the point of paying mortgage interest on a property without even bothering to collect rent?

In reality you probably won't be able to move mortgage providers or products whilst in neg equity, so your best bet is to try to get consent to let and hope you can clear down the negative equity. I'd also be slightly surprised if after credit checking you'd be granted a further mortgage but I suppose if your income is high enough to pay two mortgages you might do. Surely however in that circumstance it would make more sense to pay off the neg equity, reduce your outgoings and thereby enable a normal move much sooner?

Beckyy

A few things can pick up on, but can't give much more advice are:

- You'd need permission from your current lender to let out your current property.
- As you'd have a 2nd home you wouldn't be exempt from council tax on both properties, and would only qualify for a discount (I think)
- If you were to turn all utilities off, how could you ensure pipes wouldn't freeze etc.
- Your house insurance would be invalid if the property was empty
- No you couldn't get a first time buyer mortgage, because you've owned a property previously.

-

BarryBear83

WestonDave wrote: »

You'd be unlikely to get tax relief for business losses if you aren't actually running a business! In any event unless I'm being thick what is the point of foregoing rent which probably amounts to a return of around 5% on the value, in order to pay mortgage interest rates 1% lower? Letting it without consent makes financial sense (hypothetically - you still shouldn't do it!) because you get the rental income and pay less mortgage but what is the point of paying mortgage interest on a property without even bothering to collect rent?

In reality you probably won't be able to move mortgage providers or products whilst in neg equity, so your best bet is to try to get consent to let and hope you can clear down the negative equity. I'd also be slightly surprised if after credit checking you'd be granted a further mortgage but I suppose if your income is high enough to pay two mortgages you might do. Surely however in that circumstance it would make more sense to pay off the neg equity, reduce your outgoings and thereby enable a normal move much sooner?

Thanks for the reply but the question is why would I want to save £10k just to sell my current home when I can afford to repay the mortgage (might as well keep paying it). I'm paying £10k to sell my home?? No thanks!!

But back to my initial msg - In brief, the below is what I was trying to explain:

Currently paying £500 on our mortgage
Currently saving £1500 p/mnth for deposit on new home
So at present we're currently "spending" £2,000 /mnth on homes

Ideally we'd like to let out our current home and buy a second home to live in.

As currently in -ve equity our chances of getting a BTL mortgage might be hindered so our options are:

Let it anyway without telling current lender
Get BTL mortgage if possible and let it out, or
Leave it empty and carry on paying the £500 / mnth mortgage (e.g. if new mortgage is £1,000 then we'd be spending £1,500 in total on homes as no longer saving for the deposit).

Issue re current lender is its Bradford & Bingley - so not offering any re-mortgage products etc...makes it even more difficult to obtain a BTL mortgage!!

Notmyrealname

BarryBear83 wrote: »

Let it anyway without telling current lender

I know someone who lost their house doing that as the mortgage company foreclosed.

Get BTL mortgage if possible and let it out,

Not going to happen without a massive chunk of money for a deposit plus repaying of shortfall. Typical BTL deposits are 25-35%.

Leave it empty and carry on paying the £500 / mnth mortgage (e.g. if new mortgage is £1,000 then we'd be spending £1,500 in total on homes as no longer saving for the deposit).

You'll need one hell of an income to do that.

Issue re current lender is its Bradford & Bingley - so not offering any re-mortgage products etc...makes it even more difficult to obtain a BTL mortgage!!

BTL has absolutely nothing to do with retail re-mortgage products. BTL has two simple criteria:
a) You have a sufficient deposit (and in your case money to pay off the shortfall as well)
b) The rental value is between 125% and 130% of the monthly mortgage interest payment (depending on lender).

kingstreet

This was prepared for submission about ten minutes ago, but I got connection problems. Sorry if it's crossed.

BarryBear83 wrote: »

Hi,

Our current situation is that our home (25 yrs left on a Bradford & Bingley mortgage) is approx £10k in negative equity as we purchased it in during the "boom".

Anyway we're currently saving for a deposit on a second home and wanted to check the following:

Will the negative equity effect us trying to obtain a buy-to-let mortgage? As we're currently on the std variable rate, of 2.5%, I'm not in favour of getting a buy-to-let mortgage of approx 3.5% above base rate and would probably just look at paying the mortgage and leaving the property empty.

You will not get a buy to let mortgage. For that you'll need to move to a new lender, putting down a deposit of around 20% of the value of the property.

You require consent to let from your current lender. This may be granted, it may be subject to payment of fees or a higher rate. It may not be granted.

If we did't let out our current home (when we purchase the second home) can I complete an annual return claiming for tax relief on any allowable expenses, seeing as you have to complete an annual return if you do let it out. Obviously we'd turn off gas/elec/water etc, inform local authority it empty and then hopefully end up with just the mortgage and insurance as the only expenses relating to this property - therefore might as well look at carrying these "losses" forward in case we ever did rent the property out.

No. You can't claim expenses if you're not generating an income. Expenses are the allowable costs involved in running a business which can be offset against the rental income the business generates. You may be eligible for a discount on the council tax, but this is not 100% and it isn't indefinite.

You will find it difficult and expensive to insure an unoccupied property.

Also would having this first property effect us getting a second property (apart from effecting how much we could borrow as we'd have to show we could afford two mortgages)? and could we get a "first time buyer" mortgage for the purchase of the second property with us not remortgaging?

Some lenders allow a mortgage on a let property in the background without "taxing" you the cost of the mortgage from your income. Others take the view you may have two mortgages to pay if you have no tenant, so they deduct the cost of the mortgage from your income before multiplying it out, as they would with a loan or other credit commitment.

You won't get a first time buyer mortgage. The best rates are available to those with larger deposits, be they first time or subsequent purchasers.

You'd be better off having a discussion with an independent or whole market broker to set out exactly what your options might be. Checking with your lender that consent to let is likely, should however be your first job.

BarryBear83

kingstreet wrote: »

This was prepared for submission about ten minutes ago, but I got connection problems. Sorry if it's crossed.


You will not get a buy to let mortgage. For that you'll need to move to a new lender, putting down a deposit of around 20% of the value of the property.

You require consent to let from your current lender. This may be granted, it may be subject to payment of fees or a higher rate. It may not be granted.


No. You can't claim expenses if you're not generating an income. Expenses are the allowable costs involved in running a business which can be offset against the rental income the business generates. You may be eligible for a discount on the council tax, but this is not 100% and it isn't indefinite.

You will find it difficult and expensive to insure an unoccupied property.


Some lenders allow a mortgage on a let property in the background without "taxing" you the cost of the mortgage from your income. Others take the view you may have two mortgages to pay if you have no tenant, so they deduct the cost of the mortgage from your income before multiplying it out, as they would with a loan or other credit commitment.

You won't get a first time buyer mortgage. The best rates are available to those with larger deposits, be they first time or subsequent purchasers.

You'd be better off having a discussion with an independent or whole market broker to set out exactly what your options might be. Checking with your lender that consent to let is likely, should however be your first job.

Thanks for the reply - basically though if I can't get a BTL mortgage I have two options 1)stay living here, 2) leave it empty incurring the mortgage costs but making the insurance void and then move to a second home....

Not looking good!! Think I need to go to a lender (e.g. my current bank) and see if they'll take both mortgages on in some sort of "package".... surely somebody has come across this situation before????!!!!!!!!!!

DannyboyMidlands

This has got to be a wind up.

Listerbelle

Does your current lender not simply allow you to rent out your current property by paying for a "consent to let" application?

The bank charge for one of my rentals - which was previously my home - is 150 quid a year. No change in mortgage rate.

BarryBear83

DannyboyMidlands wrote: »

This has got to be a wind up.

Why? We bought in the boom on a high fixed rate, mortgage dropped by 33% after 2 years and our income has doubled in the mean time.

Basically disposable income wise we're laughing but negative equity is the main issue - and we aint paying £10k just to sell our house. We earn enough to cover two mortgages comfortably so why would we!!