What will banks want to see??

shamac

Going for a mortgage soon, we already have a BTL mortgage on a property we let out as a holiday let. I have done all the paperwork myself for this over the last 3 years and submitted Self assessment forms to HMRC.

I have all my figures and paperwork in a fairly simple way and have receipts etc for all allowable expenses. Will this be sufficient as I am guessing banks will want to see that this property costs us nothing to run, it actually makes a small profit.

Would it be better to get a small local accountant to put the figures into something more professional looking or is this a waste of money?

gwernybwch

You don't say whether the mortgage that you planning to apply for is a residential mortgage ie to buy a house for you to live in or to buy another BTL?

I recently got a offer in principle for a residential mortgage (to buy a second house for me to live in) as my first house is currently rented. They BS that offered the residential mortgage didn't seem too bothered regarding whether I had submitted a tax return or how much profit that I made, only that (i) the rental income was 130% of / over the mortgage payments and (ii) whether I was able to cover both the mortgage of the residential mortgage and the BTL for a period of time - should there be a void (although I'm not entirely sure what they used as the basis for the second criteria).

Hope that helps.

HappyMJ

You don't need it to look professional. Just showing them the accounts will do along with the letters from the HMRC showing what you declared as profit matches with the accounts. You do not need to show receipts.

shamac

Thanks to those who replied, I will take my handwritten list and type it up and hope that will suffice!

My only concern is this 130% figure. The house we are going to buy is for us to live in so going for a residential mortgage. The house we are renting out (holiday lets) was originally our home but we converted it to a BTL mortgage and went into rented ourselves as we had to move from the area.

Over the full year the house covers all the costs, mortgage, utilities, running costs, maintenence etc and made a profit of £2500 last year after all allowables. However, the mortgage is £1030 a month, so would this 130% bit be a problem? Is this monthly or yearly? Some months we take £3k+ and others the bookings JUST cover the mortgage (in the depths of winter etc).

There is a big chunk of equity in the house, mortgage £130k, worth approx £250k+ (neighbour's house currently on the market for £310k) would that make a difference?

Thank you.

gwernybwch

shamac wrote: »

Over the full year the house covers all the costs, mortgage, utilities, running costs, maintenence etc and made a profit of £2500 last year after all allowables. However, the mortgage is £1030 a month, so would this 130% bit be a problem? Is this monthly or yearly? Some months we take £3k+ and others the bookings JUST cover the mortgage (in the depths of winter etc).

The 130% (on my rental property) was the BS that I used (Yorkshire BS) to give a quote on a residential mortgage. Whether all lenders use the 130% or others have some other 'ability to cover both mortgages' criteria. I'm not sure.

shamac wrote: »

There is a big chunk of equity in the house, mortgage £130k, worth approx £250k+ (neighbour's house currently on the market for £310k) would that make a difference?

Possibly. Lenders on residential mortgages used to offer higher lending multiples if you had a significant deposit for the house that you were going to purchase. I'm not sure if the same applies if you have significant equity in your BTL.

I think that the first thing that I would do is arrange to meet a few lenders mortgage adviser (or contact them via their call centres) to see what their criteria is. Alternatively use a good whole of the market mortgage adviser.

Thrugelmir

shamac wrote: »

Over the full year the house covers all the costs, mortgage, utilities, running costs, maintenence etc and made a profit of £2500 last year after all allowables. However, the mortgage is £1030 a month,

Only mortgage interest is tax deductible? Have you calculated your profit figures correctly.

shamac

Thanks, yes only the interest part deducted, the house is very popular and in a good area so the booking figures are high.

Conrad

Forget all this profit and loss nonsense on the B2L, it's all irrelevant. I presume your main income is from employment right, so nothing to do with filing of accounts?

ALL the new lender MIGHT need is confirmation the existing buy to let is self funding which usually means the rent is equal to about 125% of the mortgage payment, but they often don't check these numbers and wont know what the rent is.

An alternate approach is to use a lender that IGNORES existing mortgages.

A decent non call centre, experienced broker should help.

kingstreet

Lenders normally require the rental income to exceed the mortgage INTEREST at a set rate, by a set amount, not the mortgage payment as they can be different.

For example, a lender may insist on the rental income being 125% of the mortgage interest using a rate of 6%.

If they used the mortgage payment, they could inadvertently penalise those with shorter-term repayment mortgages and those making voluntary overpayments with their regular ones.

I agree with Conrad. In the best scenario, a lender will simply ignore the BTL in the background. In the worst, the lender will take the capital amount of the existing mortgage off your borrowing power and will only lend you the remainder.

A decent independent or whole market broker should be able to assist in avoiding the worst case.