What are my options regarding mortgage and hopeful second property

Mick73

Hi there,

I've been lurking on this site for quite a number of years and have taken on loads of advice that has been given to other posters regarding money saving, but now need some advice on the possible options I have.

My wife and I have a mortgage with about £43,000 outstanding. The property is worth approx £230,000.
We want to keep this property but rent it out, looking around locally we could expect a monthly rent of around £1,300 (at least) but possibly around the £1,500 mark

My current mortgage is with Earl Shilton and is currently on BOE rate +0.21% (i believe) but it has a minimum collar of 3%. Even so, I am happy to stay with them for the time being. We currently pay around £880 p/month as we only have about 4 years left to pay it off.

We both work F/T, joint income of around £58000 p/year.

We are thinking about buying another property, but do not really know how much we could expect to obtain via a mortgage or if the equity we have in the current property is worth anything?

We are looking at properties in the region of £350,000, but I think this may be a big stretch.

We have Credit cards (3), all on 0% rates, total o/s around £10,000 but these are all under control, no payments ever missed and we move them to other 0% when required.

To cut long story short, what option do I have regarding another property?

Any help will be taken on board

Thanks

Dave_Ham

Hi there,

You have a very difficult choice. The only way you can harness the equity is to remortgage to a let to buy and take out funds to act as a deposit on the new property. You will then be able to buy a home for £350k ish.

Your issue is the rate of interest you are on and can you overpay dramatically in order to pay off this mortgage before moving. I do not believe Earl Shilton will grant you consent to let with that rate, although do not know that for a fact.

It is unlikely they will advance you further funds on that rate either, although again worth checking as I do not know this definitively. Some of the old Bank of Scotland mortgages pre-authorised an amount you could borrow on a very low rate, so worth checking.

It may be worth spending an hour with a broker who can walk you through these numbers in more detail than I can and also check the T & C's with Earl Shilton about what is available..

All the best

handytips

you will probably get approved for a mortgage of about 200k via most lenders affordability calculators, so that gives you some idea of how much deposit you will need, this can be raised from your existing propery on a let to buy basis, however some lenders will want proof that the property is being rented and it would have to be a simultaneous transaction, ie you would have to move out of your current property the same time as the new mortgage on the new property starts. You defo need specialist advice on what you are proposing and expect to pay a broker fee.

Mick73

Thank you for your replies.

To get my existing mortgage I spoke with London & Country and so will contact them again for advice shortly.

So it could be possible to get around £150,000 out of my current property to use as a deposit towards a second property, and then get a mortgage of around £200,000 via a 'normal' mortgage application????

Or are both from the same lender?

Looking at some calculators and using 4.5% interest rate (I know this is low and will go up) it could mean monthly payments of around £2000 a month (at the moment).

With Earl Shilton I can overpay by 20%, so not sure if its best to do this first or not as I dont see much benefit from doing so if I am going to borrow against the property to get a deposit together......or am I wrong thinking this!

Dave_Ham

Unless you are going to clear this, then no merit. Only merit is if they will advance you further funds on the same product. L & C will not be able to tell you this.

Worth noting that from the feedback on here; L&C seems to be a bit of luck of the draw. Some of the advisors seem to have some really good feedback and others not so - have a look through forum and you will see.

Sometimes though you do get what you pay for and given they are fee free, maybe let them make a recommendation (no credit scoring) and then assess yourself or through a more specialist, local broker.

Good luck

Mick73

My wife just pointed out to me that we are not on a 'product' with Earl Shilton.

We was on the BOE +0.21% but that finished last year. We have since reverted onto BOE + 2.0% but that also has the minimum collar of 3% for term. That's probably why I didnt notice any difference as the mortgage payments stayed the same!!

Not sure if this changes any thinking?

Dave_Ham

At which point, bin the Earl and raise finance on your existing property to use as a deposit on your new property.

Would suggest taking enough to allow a 20-25% deposit to achieve preferential rates on the residential on a repayment basis.

All the best

Leaseholder49

sorry to butt in with no helpful advice, but are you really sure about the likely rental yield? It just seems very high versus the value of the property.

I'm sure you've done your research and I don't know your area, I'm just going by my own area where properties of that value usually only yield rents of around the £800pcm mark (and there's strong rental demand here).

Mick73

From the 'basic' research done so far (i.e: checking on rightmove) my area (E13 in London) rents from around £1,200 pcm up to £1600 for a 3 bed house.

Whether this is good info to go on, i'm not sure!

Dave_Ham

East London and parts of Essex the rental yield is potentially higher than the "normal" rent as many of the locals are unable to buy.

Therefore based upon demand and supply, the price goes up.

That said, although the rent is higher there are many more disputes, grief and tenants not paying and having to be formally evicted and therefore this is built in higher risk..

Good luck