Buy-to-let - confused?!

UsernameAlreadyExists

I've started to look at buy-to-let mortgages, and I've come to the conclusion that I really don't understand them.

Surely, they've factored in protection in-so-far as you can only borrow 60-70% of house value. So if you can't pay, you get repossessed and there's enough money in the 30-40% extra house value for them to not lose out? (or have I missed the point of the capped LTV?)

Next, if the whole purpose of the mortgage is to buy a property ... "TO LET", then the tenants are supposedly paying enough to cover the mortgage and then some. Obviously there may be gaps, so a buffer zone will be required, but again the lender can ultimately repossess and still not lose out.

So, my question is, why does your own financial standing dictate the amount of the mortgage you can borrow?

I have a reason for asking and will explain once I get my head around the concept.
Thanks!

GMS

An applicant who cannot demonstrate a good financial history is risky and although a tenant would hand over the rent there is no guarantee the mortgagor would pay the mortgage.

Financial standing in terms of minimum income is in place to avoid people using BTL as a back door way of avoiding affordability checks.

What exactly do you want to know or are you thinking of?

UsernameAlreadyExists

GMS wrote: »

An applicant who cannot demonstrate a good financial history is risky and although a tenant would hand over the rent there is no guarantee the mortgagor would pay the mortgage.

OK, I get that bit ... but then the lender is safe by repossessing?

Anyways ...
I live in a 190K house and have an offset mortgage.
I've recently received some inheritance and am now in credit. I.e. I am mortgage free and have a small amount of "savings".
I now plan to climb the ladder a little by moving into a 300K house.

I can afford to do this on my own and end up with a just under < 80K mortgage after all fees (which is coincidentally my current facility as I dropped it to 80K to yield an LTV of 50% or less for the lowest rate).

Now I can borrow more than I am planning to, and I've also not factored in my partner who is not on the property ladder and is a "key worker" (Teacher)

What I had running around in my head was shifting my own personal mortgage onto the new place, but ... at the same time, trying to entertain starting a BTL mortgage joint with my partner on my current place ... i.e buying from myself?
Does this makes sense?

Long and short of it is I can't borrow nearly enough to do this.

GMS

Repossession sufficient to repay the mortgage is not something that a lender can use for a reason to lend.

Why can you not borrow enough? Do you mean the rent wouldn't be enough?

UsernameAlreadyExists

No, simple maths.

I am only on ~40K (on a salary sacrifice pension scheme, which doesn't help with borrowing!), and the partner is only in year 2 of teaching so about 23K? (not sure!)

After the move, I'll be mortgaged up to 80K or so ... so my "balance" combined with hers won't get us the borrowing power to purchase my own 190K house 'from me' especially when they'll only lend 60-70%!

Even though the whole point of it would be to get her onto the ladder, and be renting it out.

I think I might just have to scrap the idea and think about doing on a much cheaper property.

(EDIT: I was thinking about the cost savings associated with selling to "ourselves")

GMS

You wouldn't be selling to yourself, you would be refinancing and adding your partner to the deeds/mortgage.

Your personal income wouldn't come into play as such as you can demonstrate sufficient minimum income to meet criteria (assuming all other criteria met)

The rental income will dictate the amount you may be able to borrow.

A broker would be beneficial as many BTL lenders are broker only.

You are looking at a 'Let to Buy' so if you do it yourself ensure that both lenders are happy with the scenario in terms of what monies are being raised for and source of deposit funds.

holly_hobby

UsernameAlreadyExists wrote: »

OK, I get that bit ... but then the lender is safe by repossessing?

There must be affordability assessments of the applicant, to satisfy responsible lending requirements - this is relevant to both residential and commercial lending. Basing suitability on the guise of later applying for a possession order, is not a responsible repayment plan or a good business model - hence the status and criteria requirements to be met.

UsernameAlreadyExists wrote: »

What I had running around in my head was shifting my own personal mortgage onto the new place, but ...

You can't transfer borrowings between properties, but you may be able to transfer the current mge product you are enjoying, if it is "portable". This is called porting the rate, and is subject to the lenders agreement and also the applicants meeting of current criteria and affordability assessments for the whole mge on your new home - albeit with the "ported" mge product being applied to an equal amount of os borrowings it related to at the time of transfer.

UsernameAlreadyExists wrote: »

at the same time, trying to entertain starting a BTL mortgage joint with my partner on my current place ... i.e buying from myself?
Does this makes sense?

Ok, what you are looking for is either consent to let with your current lender, or a straight remortgage onto a Buy To Let mortgage, with a simultaneous Transfer of Equity (adding your partner to the deeds & mge).

The basic criteria for most BTL lenders is rental income at 125% of generally the interest element of the mge (on an AST), min earned income of 25k, a clean credit history and max LTV as a first time landlord of 75%.

UsernameAlreadyExists wrote: »

Long and short of it is I can't borrow nearly enough to do this.

If you rent your current property out and it is self sufficient, most lenders for your residential application will set that property and any os mge to one side for their affordability assessment (although some such as HSBC do take the os mge as a commitment for their calcs).

That means that they will look at the applicants earned income solely in respect of supporting the residential mge applied for.

In respect of the property you intend to let out, affordability is based solely on the rental income (notwithstanding the requirement of a no of lenders (but not all), for evidence of earned income of 25k).

If you seek a BTL remortgage (and don't explore consent to let with the current lender), you obv have remortgage fees (conveyencing, exit and lender application fees).

If you seek consent to let and apply to port your existing product, they will place your existing property on their SVR/BMR + a loading of circa 1.5%, with possible admin fees - and usually you have around 3 yrs before they will insist this is changed/remortgaged to another lender on a specific BTL arrangement.

If you do decide to let, further guidance on the legal and taxation side of being a landlord is here if you need it.

Hope this helps

Holly

UsernameAlreadyExists

GMS wrote: »

You wouldn't be selling to yourself, you would be refinancing and adding your partner to the deeds/mortgage.

OK, makes sense. got that.
But ... surely I can then only borrow 60-70% of 190K on the BTL? - which means I have an additional 70K to mortgage on the new place? (taking me personally to ~£150K? ... no can do?)

I fully appreciate that we can't afford both properties solely on our own .... hence my original question : the tenants are supposed to make up the shortfall!!


@holly ... didn't realise you'd posted, reading yours now.

GMS

What rental income would you expect monthly? This will be the driving force of the loan amount, not the LTV.

Work on 125% of the mortgage payment based on interest only at 6% for a rough guide as to what the rent would need to be.

UsernameAlreadyExists

holly_hobby wrote: »

You can't transfer borrowings between properties, but you may be able to transfer the current mge product you are enjoying, if it is "portable". This is called porting the rate, and is subject to the lenders agreement and also the applicants meeting of current criteria and affordability assessments for the whole mge on your new home - albeit with the "ported" mge product being applied to an equal amount of os borrowings it related to at the time of transfer.

Please see this thread!
https://forums.moneysavingexpert.com/discussion/4342811
*still not read your entire post.

EDIT: read it now ... alot of what you've said susequently hangs around NOT being able to move mortgage. but from what I've understood from the call to my bank, it seems I can?!. It's a current account mortgage which is apparently not entirely standard!

holly_hobby

Right so you already have a thread on porting, and have been advised by the lender that they will permit you to do this - this relates to the mge product don't forget NOT the actual borrowings it applies to .....

UsernameAlreadyExists wrote: »

I've just phoned them as I was going to get them to send me the necessary paperwork for a new mortgage application etc, but it turns out that they can facilitate a "house move" and retain the existing mortgage acount etc. Bonus! *rubs hands.

(I shouldn't have been so lazy and phoned them first, ooops, sorry for wasting your time )

Good.