Keeping existing property and buying a new home

Adamgr81

Hi everyone

I've just signed up to this forum, I have some questions regarding buying a second home and renting out my existing property as a future investment. Hopefully someone reading this has gone through the same issue and can provide some help

Here is my situation:
I own a 1 bed flat that I brought 7 years ago
Mortgage is with NRAM
Property value is 125000
Outstanding mortgage is 113000
Rental value is £650
Monthly mortgage payments are £600

Im looking to purchase a new property as I now have a family and a flat isn't big enough! I would like to keep the existing property as I know the rental value covers the mortgage and I think it would be a good investment for the future. I have saved 23k for the deposit on the new property so would be able to get a 90% mortgage.

NRAM's consent to let criteria include:
- The rental value must cover 120% of the monthly mortgage
- Property must have at least a 75% LTV

Now with all this in mind:
- I'm thinking of speaking to NRAM to change my mortgage to a interest only, I would then easily meet the 120% rental value.
- Do you think NRAM would let the 75% LTV slide if I can proof I can meet the 120% rental value?
- Is it likely that the new mortgage company for the new property would ask for proof of consent to let or would they just ask for proof that I can cover the rental value over 120%?
- Would it be worth changing to a different mortgage company with consent to let criteria that doesn't require such a high LTV?
- Is it worth looking into moving ownership of my property to my dad and move it back to me once the LTV is below 75%?

Do you have any other advice/ideas of how I could keep my existing property and still buy a second property?

Many thanks for any help you can provide!

Adam

DannyboyMidlands

You need 75% LTV on the rental property. You don't have it. You need to sell the flat.

GMS

You are clearly out on LTV. Have you asked if they will allow Interest Only?

How do you mean by moving ownership' to your Dad? He could buy it from you and clear the mortgage if that's what you mean?

You cannot go to another lender as the figures don't stack up for a Buy to Let lender. You cannot remortgage to a lender on a resdidential rate then apply for consent immediately.

What would happen if you had no tenant in? Could you afford 2 mortgages? Remember to factor in the insurance, any management fees, maintenance costs, tax etc when looking at the figures.

You have according to your estimates £12,000 in equity. Is it worth the hassle? Would you not be better selling up and having a bigger deposit for your new place?

dimbo61

With £23K plus maybe £12K from the sale of your flat you might have 15% deposit and therefore better deals.
Making £50 a month from renting will not even cover the landlords insurance and the annual Gas safety check.
Sell up and put down the best deposit you can.
If Dad has a few ££££ in the bank look at an Offset mortgage with YBS ( friends and family )

Adamgr81

Thank you all for your quick response to this, much appreciated.

The rental will cover the mortgage and I have a buffer of money to cover the mortgage for 3 months if I cant find a tenant in that time, although that is very unlikely due to the location of the property.

My main reason for looking to keep this property is for future investment, someone else can pay off my mortgage and in 25 years I have a property that I completely own and can pass on to my children. Yes it will be more hassle and risk in the first 5 years but after that it will start to get easier and less of a burden.

Think my first point of call is to have a chat with NRAM and see if there is any possibility of them accepting consent to let without the 75% LTV if I can cover the 120% plus rental.

If this is not possible then i'm running out of ideas and may just have to bite the bullet and sell, if anyone has any alternative ideas i'd love to hear them!

Many Thanks
Adam

DannyboyMidlands

I'd sell it.

Remember that if you want to be a landlord there's nothing stopping you buying a property specifically for this purpose a few years down the track. OK you might have a few more transaction fees than if you kept your flat but pretty insignificant over the life of the investment.

You might even find that under those circumstances you would chose a different place altogether. Maybe one that will require less maintenance over 25 years or is cheaper or will rent for more money.

holly_hobby

Consent to let with your current lender would be the best solution, but with only £50 spare (rental inc £650 v mge of £600), before any management/maintenance costs, I wouldn't really consider this a viable or sustainable business arrangement in its current form. Your lender may require proof of rental (AST), management by an ARLA letting agent, and charge you a loading on your current rate & an admin fee. CTL is only for a temp period - 36mths is usually the tipping point (but can be earlier), at which time (and as a client of NRAM) you will have to move to an alternative lender on a BTL arrangement.

To switch to another lender now (or in the future), you will need to source a BTL mortgage, being a first time landlord (if you seek a BTL mge at this point) your max ltv will be 75%, std affordability criteria is rental income at 125% of mge - which may be interest only (use 6% as a ballpark fig for calc purposes). Various lenders also have a min earned income of 25k.

Annual Self Assessment submission, declaring net rental income for income tax purposes.

Without getting into the whys and wherefore's of being a landlord, my main concern is that you have no apparent contingency fund for repairs, periods of unoccupancy - of which unless your income could cover both mges you may find yourself in a right pickle sooner rather than later.

First thing to do, is contact your lender find out if CTL is an option or not, and then take it from there.

Hope this helps

Holly

Thrugelmir

Adamgr81 wrote: »

someone else can pay off my mortgage and in 25 years I have a property that I completely own and can pass on to my children.

If you move the mortgage to interest only how do you intend repaying the mortgage?

Also factor into account that the capital owed on the mortgage is repaid from after tax income, i.e. cash generated.

ceeijd

I talked to NRAM a couple of weeks ago about something similar and they would not entertain the idea of dropping the mortgage to interest only.... the only option left is to sell up and move on, they clearly want as many people off of their books as possible..

Let us know if you manage to get moved to interest only and who you spoke to ;-)