BTL or Lifetime Mortgage/Equity Release possibilities

jennifernil

Posted this yesterday on the House Buying board, but better on here I think.............

Bit long, so please bear with me.....BTW we are in Scotland.

DD is considering a property that needs total modernisation, a 150 year old 4 storey townhouse, but that looks liveable in as it is.

Going to see it this week, so just researching the options.

Price is in the region £265,000 +, cost of work.....no idea at present, but can hopefully be spread over several years.

Likely to involve rewire, replumb, install CH (none at present), insulation, renew or upgrade windows (only single glazing), new kitchen, install 3 bathrooms, etc, etc.

Her Dad is expert DIY, so will do as much as he is allowed to.

She owns outright a property worth in the region of £160,000 to £175,000, plus has around £25,000 in the bank.

Her salary (before tax) is £29500 plus bonus (maybe £1000).

Our income from pensions is around £30,000 after tax.

We are happy to help her short term, say up to 5 years, we have £70,000 available immediately, and a property worth in the region of £500,000.

With the market as it is, it could take a long time to sell her present flat, but it is in a very good position in a University town and would let for at least £600 pcm, though she may have missed the student boat for the 2012/13 year.

So, if she goes ahead, I am thinking maybe BTL on her flat, £25k from her, £70k from us, and a residential mortgage of whatever on the property. Or maybe equity release on our house. We are 63 and 70, so presume remortgage is not easy/possible?

So.....what is the best way forward? Obviously we are looking for the least expensive option.

We are happy to help her with this, understand the risks. We can afford to make mortgage payments up to £750 pcm.

She is not really looking to be a landlord long term, so would want to sell her present flat in a couple of years.



Update........viewing tomorrow, but there are apparently already 3 other notes of interest,it sounds like the vendor wants a quick sale, as the agent indicated they may go to a closing date soon.

Without finance in place, she cannot move forward. We havent had anything to do with arranging mortgages in the last 10 years, so not up on the timescales to arrange things these days.

What sort of timescale would she/we realistically be looking at to get the finance in place?

kingstreet

Presumably, her salary of £29,500 is gross and she has no credit commitments to deduct?

That should give her a residential mortgage of around £120,000.

She could remortgage the flat onto a BTL product, raising upto 75% of the value. However, the indicated rental income value isn't enough, so the limit is likely to be in the region of £92,000.

That gives £212k. With some of your cash and hers added to the pot, you should have enough to buy the property.

A further injection of capital from you should provide sufficient funds to do the work and when the flat sells she should be able to realise the £70k(ish) equity to pay you back.

This is fairly straightforward based on the information you've supplied. I suggest you get a good independent or whole market broker to run these applications for you/her. There's nothing to prevent her starting the remortgage now to ensure it gets a head start on the potential purchase.

Things to remember - the flat has to be in readily lettable condition and the surveyor has to agree the rental value is as you say. She needs to check she's allowed to sublet. Make sure the house is mortgageable at the outset.

Jimbo1976

If she is desparate she may be may be able to get a bridging loan to buy the place. As she has some cash and also an unemcumbered property I would imagine most bridging firms would be happy to lend her the purchase price with charges on her existing home and the new one. Bridging is pretty expensive but is quick to set up.

I think it is best for her to speak to a broker to work out the figures. But you need to start working out how much the work will cost and build in some just incase money.

If you do want to raise money from your own home I would be wary of equity release/lifetime and see if you can get a normal mortgage. The good news is that with an income of £30,000 you should be able to get a mortgage. Equity release/lifetime is expensive and you just end up watching your equity disappear. Again a decent broker can help with a mortgage beyond normal retirement date but expect to have to prove pension income etc

jennifernil

I have made tentative enquiries this morning with our bank, but age seems to be the stumbling block when it comes to getting an ordinary remortgage on our propety.

They would only offer a 5 year repayment deal as they don't go beyond 75. On an affordability basis, they would only lend £45k.

For interest only they require a repayment vehicle to be in place, and we don't have any of the things they would accept.

So a mortgage broker is the way to go I think.

jennifernil

kingstreet wrote: »

Presumably, her salary of £29,500 is gross and she has no credit commitments to deduct?

That should give her a residential mortgage of around £120,000.

She could remortgage the flat onto a BTL product, raising upto 75% of the value. However, the indicated rental income value isn't enough, so the limit is likely to be in the region of £92,000.

That gives £212k. With some of your cash and hers added to the pot, you should have enough to buy the property.

A further injection of capital from you should provide sufficient funds to do the work and when the flat sells she should be able to realise the £70k(ish) equity to pay you back.

This is fairly straightforward based on the information you've supplied. I suggest you get a good independent or whole market broker to run these applications for you/her. There's nothing to prevent her starting the remortgage now to ensure it gets a head start on the potential purchase.

Things to remember - the flat has to be in readily lettable condition and the surveyor has to agree the rental value is as you say. She needs to check she's allowed to sublet. Make sure the house is mortgageable at the outset.

Her only commitment is about £1000 on a Tesco 0% CC, but she has money in the bank to repay that, should she do that now, or let it run till the 0% deal expires?

The figures do seem to stack up OK, just the lack of time that is worrying. How do we find a good broker?

The flat is in good letting condition, she would only need a gas certificate. I think at least half the flats in the block are already rented out, so no problem there. It's only a 5 minute walk to the Uni, so ideally positioned.

My only reservation is that it is late now for a student let as most will already have fixed up acommodation.

Plus, though the prospective house does look perfectly habitable, she may be better to stay in the flat until the "messy" essentials are done, hence the idea of releasing some capital from our place first.

However, thinking it through, if she takes the BTL route, the interest could be set against the income for tax purposes, which would presumably not be the case otherwise?

kingstreet

jennifernil wrote: »

Her only commitment is about £1000 on a Tesco 0% CC, but she has money in the bank to repay that, should she do that now, or let it run till the 0% deal expires?

Leave it. It won't be an issue. If necessary offer to repay it at completion when stating it on mortgage application.

The figures do seem to stack up OK, just the lack of time that is worrying. How do we find a good broker?

Ask friends and relatives for a recommendation. Failing that, try https://www.unbiased.co.uk turning off the "website and email only" option so you get a full list and not just the paid-for adverts.

However, thinking it through, if she takes the BTL route, the interest could be set against the income for tax purposes, which would presumably not be the case otherwise?

This is true. She can offset the interest on a mortgage upto the full value of the flat if she borrows it. If you supply the money, she can't do that.

Jimbo1976

Your daughter should bear in mind that students tend to be quite hard wearing on properties so she should budget for regular redecoration. Obviously damages etc can be taken from the deposit but wear and tear will be high