Unuaual mortgage situation - let to buy

Bm1981

I am in a slightly unusual situation with my mortgage. I have a lifetime tracker with HSBC and owe 130k on a house valued at 190k, Rate is 2.5% currently. We are looking to upsize to a new house valued at 350k. HSBC will port my existing 130k debt across and lend me an additional 180k at 4.8% giving me a total motgage of 310k netting around 3.8%. Now in my opinion, this is quite a good deal considering I will actually only be putting down 10% of the total property value.

It gets slightly messy as I am selling part of my existing property to my parents. We are keeping it together as a joint investment. I was under the impression that I could move my existing mortgage to my new property and get a new buy to let mortgage with my parents on my existing property, however, when I spoke to the mortgage advisor (from the estate agents we are buying from) he said I couldnt do this and I would have to put more down as a deposit on my new mortgage?

Whats the best way for me to do this, also is there any way I can avoid all the legal and fee's and stamp duty as we are not really selling the property? The property is currently in both my wife and my names but ideally I would like to put it just in my wifes and my fathers as neither work and I would get taxed on the rental income side.

Any advice on this appreciated.

Thanks in advance..

Dave_Ham

Ok - the let to buy side is certainly possible. Not sure how your Estate Agent has got involved in a HSBC mortgage but hey ho

You can remortgage to a let to buy in names as suggested from a mortgage perspective.

You have a couple of hurdles though:

HSBC will see this as a retained financial commitment and therefore not sure how this will effect your affordability. This is a further issue as even though your intention is to let the property, you have no track record and history. Again as a broker we do not see HSBC criteria as they are direct only and therefore cannot second guess how they will treat this.

HSBC may also want to know more detail about your deposit if this is the actionable plan. Again, they may not like this.

Once you have confirmed these, many buy to let lenders will only deal with brokers and the rates are more competitive than you can get on the highstreet, if they would do it.

Additionally many of the let to buy products are for simultaneous exchanges, so be careful on this if you were looking to release funds first.

Hopefully some food for thought, just be careful how involved your Estate Agent is getting as they are typically not qualified to even start talking about mortgages, deposits etc.

All the best

holly_hobby

Ok couple of points ...

Its important to understand that you are porting your tracker deal only, not the 130k underlying debt it applies to - so you will still be fully assessed on the total amt of mge to be held on your new home, albeit with the existing tracker product transferred over and applied to 130k of the new borrowings (over the remaining term of the tracker if not a lifetime product), with the residual borrowings on an alternative product from their current rate - so LTVs and min deposits will still have to fit accordingly.

A Let to Buy mge is where you seek a mge to secure a new primary residence, whilst retaining your previous home to let out (either under consent to let or via switch/remortgage onto a Buy To Let mortgage). Under the arrangement, and in the main, the lender will set aside any mge commitment on the previous house (usually after verifying that it is self sufficient and your existing lender is aware it is to be let), and you will be permitted to take any qualifying residential product. Although it should be noted that more conservative lenders such as HSBC, may choose to apply the os mge on the vacated property, as a commitment when assessing affordability on your new primary residential mge.

With respect to the "to be" let propety, if you don't need to release any equity, you could seek Consent To Le (CTL) with your current lender (although they may not be happy with the added exposure of you having 2 mges with them). CTL, if granted, is usually for a defined period, and you will be placed onto the lenders SVR & a loading, there may also be admin fees, and the lender may want verification of it being self funding and under an Assured Shorthold Tenancy (AST) agreement.

If your lender refused, or you want to raise equity, you will need to switch or remortgage to a Buy To Let mortgage - where there will be criteria such as max ltv of 75% for a first time landlord, rental income 125% of mge (which may be interest only - use 6% as a ballpark calc fig), with a min income of 25k - not all lenders have the min income requirement if thats an issue for you.

Puttint that to one side, the property you are to vacate and let - you are discussing a transfer of equity (TOE) arrangment between yourself and Dad, apparently to mitigate your tax exposure on net rental income.

You say its not really a sale (no monetary exchange) so SDLT etc doesn't apply. A sale is essentially a transfer of equity between parties, whether in exchange for consideration (eg money) or not. So, any TOE between you and Dad will be exposed to SDLT, but of course there will be no liability if the value is below the nil rate band, which is currently 125k. (also no cgt for you due to full PRR relief)

There are also future CGT issues to consider if Dad goes onto the deeds, inc the fact that the property will be an asset of Dads (but not his main residence), so it will be included in any means tested state funding assessment.

IF, you are only considering this TOE with Dad solely to mitigate tax (as suggested), there is a much simplier way of managing this.

I am assuming that it is currently held under a joint tenancy arrangement with your wife (i.e 50/50 share each).

As you know when declaring rental income for tax, the division of profit for taxation with married couples is 50/50 - so 50% of your net rental income will be submitted under your annual return where it will be exposed to income tax at your highest rate.

The way to deal with this situation for HMRC (for married/civil couples), is to change the deeds into a Tenants In Common arrangement - which permits the unequal division of legal ownership.

You can then effect it say 99/1 in favour of Mrs BM, the purpose of doing this is that you may then complete and submit HMRC Form 17
(attached -http://www.hmrc.gov.uk/forms/form17.pdf ), which advises HMRC of the division of legal ownership between you and the Mrs, and thereby how the division of profits for tax purposes will be apportioned i.e 99% of profit under Mrs BMs SA return, and 1% under your own SA return - thereby mitigating the exposure.

The futher advantage of not effecting a TOE between you and Dad, is that if you sell within 3 yrs of vacating the property, and as this was your prev primary residence, there will be NO cgt exposure at all. As oppossed to the situation if you proceed and have Dad become a legal owner via the TOE.

If you sell os of the 3 yr watershed, any gain will be exposed to a CGT calc, but this will be mitigated by the application of various reliefs and allowances, including primary residence relief (& last 36 mths of ownership), lettings relief, annual CGT allowance.

Notwtihstanding the other issues for Dad, he would only be able to apply his annual cgt allowance to any gain if a TOE was pursued (not the other reliefs I've touched on) - but you could use the TIC arrangement to manage CGT exposure (ie he has only a small %ownership) and rental income division for inc tax purposes.

You need to sit down with an experienced broker whom understands what they are doing and the best way to manage your requiremetns, and also the amendment of deeds and most tax efficient way to hold the property with your solicitor and tax adviser.

Hope this helps (sorry its a bit lengthy (the post that is !) but lots of points to consider ... !

Holly x

Conrad

Bm1981 wrote: »

he said I couldnt do this and I would have to put more down as a deposit on my new mortgage?

Whats the best way for me to do this, also is there any way I can avoid all the legal and fee's and stamp duty as we are not really selling the property?

The property is currently in both my wife and my names but ideally I would like to put it just in my wifes and my fathers as neither work and I would get taxed on the rental income side.

.

I think what is mean't is you cannot borrow above 75% on the existing one when converting to a b2l? So if you owe more than 75% you need to pay down that mortgage.

You cannot avoid legal fees and stamp duty as your parent is buying a property.

As to saving on income tax, personally I thought we all believed in funding state schools and hospitals, so your tax goes to a good purpose which you and your future children benefit from.
People forever critiscise tax reduction schemes as we're meant to be all pulling together and contributing as much as we can.

Bm1981

Many thanks for the information.

Is there anything stopping me from moving my existing mortgage to the new property and simply getting a new buy to let with my parents on my existing (put in more capital to reach 75 ltv) although this will incur stamp and legal fees? I was thinking I could put the new mortgage in wife and dads name and have no exposure this way.

Dave_Ham

I would think I would type exactly what I typed in my previous post.

Only thing stopping you would be HSBC policy & criteria - which I think I pretty much said in my last post

Bm1981

But I'm not referring to a let to buy mortgage with HSBC, I am thinking a new buy to let with bank y. Do I still need to inform HSBC of this even though its a seperate mortgage and probably not even in my name? This way I can transfer to my wife, move my existing rate to my new property etc?

But 'we' would then have to pay both solicitors buying and selling fees plus stamp?

Dave_Ham

Am I missing the point, are you buying the new property with HSBC just in your name?

Whose name is currently on the HSBC mortgage?

Bm1981

Ok so this sounds like the missing point. I would need to take my wife off the mortgage for the new property? If she were to stay on my I would have to inform hsbc she had an interest in another property with another lender - but even if she did stay on I don't see what the problem is, surely this would be beneficial as she would now have an income?

Sounds like I need to sit down with an advisor and go through in detail. I was hoping for a simple way round but doesn't sound possible.

Thanks all

Dave_Ham

Spot on, but that is why I was saying you will need to speak with HSBC as any one of these factors may prevent you from porting.

It will save you stamp duty etc. but you will need to weigh up the whole situation.

I would suggest speaking with a broker and they can go through the detail, specifically on the let to buy bits.

You may want to ask HSBC how they will treat the let to buy to raise finance and in the background, as they may tolerate it and better for you both to be on the new mortgage.

holly_hobby

No, because this isn't a simple situation.

However, between us all we managed to cover everything that you have raised (and a few extras !) .

If you pch the new house in just your own name, then obviously your sole salary will obv have to be sufficient to svc the mge as per HSBC affordability assessment - you will also have to delcare your wife as residing there, where she will have to sign a "consent to vacate" disclaimer - meaning that if the lender seeks a possession order, she has no residency rights.

You could take yourself completely off the property to be let, leaving wife on, and assuming that she will meet the lenders criteria inc any min income and max 75% ltv.

As I say way back, you need to discuss this with your solicitor re TOE between you & wife, a broker re your requirement for a BTL mge, and HSBC re the porting of your current product, and if your sole income is sufficient for your borrowing requirements.

There's not much else we can do for you here - bums on seats is the next stage for you.

Hope this helps

Holly