Joint Mortgages when one person has a mortgage outstanding

Toiletduck

Hi,

I am looking to buy a house with my future wife in the next year or so, she moved into my own house in order to save her rent money for the deposit ~2 years ago so we now have a 10% deposit on a £250k purchase if we wait another year we will have 15%.

The problem is my own house, the equity left in it is not worth considering, it is up for sale at the moment just to pay off the mortgage so we can start again. We then plan to rent whilst looking to buy somewhere. Unfortunately being a small 2 bed terrace in an average part of town there are very few buyers for this type of house at the moment. It does appear the market in my area is supported entirely by BTLs snapping up cheap ones from forced sellers and then renting them back to the people who would have once bought.

Part of me think thats as I am simply going to sell to a landlord I may as well hold onto it and do it myself as the houses rent very quickly for good prices (and if I cannot sell I will have no other choice), however the problem then is taking on a joint mortgage for a new house when I already have one outstanding. Seeing as we will be looking at 85-90% LTV mortgages I can imagine this could be a problem?

In all other respects we would appear to be safe borrowers, Ive never missed a single payment on my current mortgage, my girlfriend is a Doctor and I work for an Engineering consultancy and we would be looking for a mortgage less than 3x our joint income. However with the 2nd mortgage in the background would this cause problems especially given that we are looking for a high LTV mortgage?

Is the only way to find out to start talking to some banks?

Cheers

Andy

Wh05apk

Most lenders will disregard rental properties, normally subject to you having consent to let or a btl mortgage.

You may however struggle to get consent to let from your lender given the high ltv.

JimmyTheWig

What LTV do you think they'd need on the rental property, Wh05apk?
They could use some of the deposit for the new place to increase equity on the old place. [If the value of the new place was double the value of the old one they could turn 15% deposit on the new place into 10% deposit on each of them.]

If you just wanted to keep both properties for a while then I don't think that the LTV on the old place would affect the new place.
They would calculate how much they are prepared to lend (based on salary multiple, etc) then take off the balance of the existing mortgage.
Depending on the relative values, again, this might be possible.
I am NOT suggesting that you do this and rent it out without consent. This can get you into all sorts of problems. Don't go there!

holly_hobby

If the property is not let - your income will have to be sufficient to support both mortgages, which is common sense really.

If you let the existing property, and under whats technically a let to buy arrangement, the existing mge will be effectively ignored by the new lender, and you will be free to apply for any suitable product, as long as their mge is for the purchase of your private/primary residence and you meet their standard criteria checks. (the lender may require evidence of an AST and that the property is let, to be able to effectively "ignore" the commitment).

With regareds to the property to be let, you will need consent to let from your current lender (max normal period is 3 yrs, with the lender able to load your current payrate to reflect the change in tenancy). Or you will need to source a BTL mge, however max market LTV is 80% (with rent 125% of mge payment, and generally a min earned inc of 25k, apart from a select no of providers whom don't have this requirement). Your current ltv will rule out a move to BTL, so if your current lender refuses your request you are snookered. If agreed, you will also need specific landlord blds (& contents if reqd) insurance, as std B&C policies are invalidated when the property is let.

Without giving a lecture on renting, as is bound to appear on your thread, ensure you understand the obligations of landlord, that you have a contingency fund for periods of unoccupancy and or repairs not covered by your landlords b&c ins. You must also register for SA (if you don't currently use this faciilty) for disclosure of your net rental income and corresponding income tax due.

If you sell the let property within 3 yrs of it ceasing to be your main residence, you will not be liable to any CGT. If you sell after this period, you shall be exposed to a CGT calucaltion, but with the various allowances and reliefs (inc lettings relief), you are looking at a pretty hefty gain in excess of £50k, before you will be liable to any CGT bill.

Spend an hour with an experienced whole of market broker who will source the most suitable lender and product, and whom will support you throughout the application process, and beyond if reqd.

You may want to employ an accountant to assist with your returns and give guidance on permitted deductions from your gross rental income (such as mge interest, management and essential maintenance costs, etc), although self administration is pretty simple, with lots of on line guidance and HMRC info available, if you're confident with figs.

Hope this helps

Holly

Toiletduck

Wh05apk wrote: »

Most lenders will disregard rental properties, normally subject to you having consent to let or a btl mortgage.

You may however struggle to get consent to let from your lender given the high ltv.

Its Britannia, I will speak to them then. They seem quite resonable to be fair, when I last remortgaged 3 years ago when I think it is safe to say there was either no or negative equity in the property they remortgaged onto a 90% LTV fixed rate based on the 2007 valuation no questions asked.

The mortgage now stands at £76k and the last sale on my street in August 2011 was for £85k so I could probably just about argue there is 10% equity in the house. The interest on the mortgage is about £280 a month and next door was let for £500 within a week so it would seem a reasonable proposition to let it out if I cannot sell.

Cheers

Andy

Toiletduck

Thanks, dont worry I am only really considering rental as a last option. If I can sell I will, its just that at some point we will need to move on and if I cannot sell it then there isnt really any other choice.

I guess also having lost a load of money on it and given that every house on my road seems to sell to investors for the last few years I wonder if think perhaps I should hang onto it as the BTL band obviously see it as a good proposition.

Anyway, out of the blue Ive had 2 viewings booked this week so it may yet sell.

Cheers

Andy

holly_hobby wrote: »

If the property is not let - your income will have to be sufficient to support both mortgages, which is common sense really.

If you let the existing property, and under whats technically a let to buy arrangement, the existing mge will be effectively ignored by the new lender, and you will be free to apply for any suitable product, as long as their mge is for the purchase of your private/primary residence and you meet their standard criteria checks. (the lender may require evidence of an AST and that the property is let, to be able to effectively "ignore" the commitment).

With regareds to the property to be let, you will need consent to let from your current lender (max normal period is 3 yrs, with the lender able to load your current payrate to reflect the change in tenancy). Or you will need to source a BTL mge, however max market LTV is 80% (with rent 125% of mge payment, and generally a min earned inc of 25k, apart from a select no of providers whom don't have this requirement). Your current ltv will rule out a move to BTL, so if your current lender refuses your request you are snookered. If agreed, you will also need specific landlord blds (& contents if reqd) insurance, as std B&C policies are invalidated when the property is let.

Without giving a lecture on renting, as is bound to appear on your thread, ensure you understand the obligations of landlord, that you have a contingency fund for periods of unoccupancy and or repairs not covered by your landlords b&c ins. You must also register for SA (if you don't currently use this faciilty) for disclosure of your net rental income and corresponding income tax due.

If you sell the let property within 3 yrs of it ceasing to be your main residence, you will not be liable to any CGT. If you sell after this period, you shall be exposed to a CGT calucaltion, but with the various allowances and reliefs (inc lettings relief), you are looking at a pretty hefty gain in excess of £50k, before you will be liable to any CGT bill.

Spend an hour with an experienced whole of market broker who will source the most suitable lender and product, and whom will support you throughout the application process, and beyond if reqd.

You may want to employ an accountant to assist with your returns and give guidance on permitted deductions from your gross rental income (such as mge interest, management and essential maintenance costs, etc), although self administration is pretty simple, with lots of on line guidance and HMRC info available, if you're confident with figs.

Hope this helps

Holly

JimmyTheWig

Toiletduck wrote: »

Thanks, dont worry I am only really considering rental as a last option. If I can sell I will, its just that at some point we will need to move on and if I cannot sell it then there isnt really any other choice.

If you don't really want to be a landlord (and have to do things like gas safety checks, etc) then I'd say don't be one.
If you don't want to rent it out and you want to move then you may need to drop the price to a point where it will sell.

R_P_W

ToiletDuck - your situation sounds very similar to mine. I have a property in the Midlands, myself and my wife are moving to London with work. I have my house on market but not looking like its selling in any hurry.

We applied for a new mortgage through a broker with my extisting mortgage in the background they treated it as an ongoing debt/commitment. Luckily we were approved.

Whilst we can afford both mortgages, I dont really want to. If it doesnt sell in the next 3 months I am going to rent it out. Have spoken to lender and they will give me 12 months consent to let etc.

Like you I would rather sell and put any additional money into overpaying my new mortgage.

Toiletduck

JimmyTheWig wrote: »

If you don't really want to be a landlord (and have to do things like gas safety checks, etc) then I'd say don't be one.
If you don't want to rent it out and you want to move then you may need to drop the price to a point where it will sell.

We have to pay the mortgage off and fees etc so there is obviously a limit on how low it can be priced but at some stage we will have to move and if it hasnt sold by then we are left with no other choice than to rent it out. However I am just thinking worst case here, its only been on sale for 2 weeks so its pretty early days.

Toiletduck

R_P_W wrote: »

ToiletDuck - your situation sounds very similar to mine. I have a property in the Midlands, myself and my wife are moving to London with work. I have my house on market but not looking like its selling in any hurry.

We applied for a new mortgage through a broker with my extisting mortgage in the background they treated it as an ongoing debt/commitment. Luckily we were approved.

Whilst we can afford both mortgages, I dont really want to. If it doesnt sell in the next 3 months I am going to rent it out. Have spoken to lender and they will give me 12 months consent to let etc.

Like you I would rather sell and put any additional money into overpaying my new mortgage.

Thanks for the advice, what sort of LTV did you take out on the new mortgage?

Cheers

Andy

JimmyTheWig

Toiletduck wrote: »

We have to pay the mortgage off and fees etc so there is obviously a limit on how low it can be priced

I don't know if it is obvious or not, but you are free to use some of your deposit money to pay off the existing mortgage. (Obviously that leaves less deposit for the new place.)
I'm not saying that that's what you want to do, but it depends on how much / how soon you want to move.