Second mortgage

lulaloo

Hi,

I currently live in a home with a value of £130,000 and equity of £62,000. I would like to purchase a second property with a value of £130,000 and have a deposit of £25,000.

I will let my first property out for £900 pcm.

My current salary is £18k, my partner earns £28k but has a very very bad credit rating therefore won't be able to be on my mortgage.

I am worried that the rent won't be taken into consideration when the bank looks at how I can afford a second property. Or will the equity in my first house act as security?

Any help is much appreciated.

Thrugelmir

lulaloo wrote: »

I am worried that the rent won't be taken into consideration when the bank looks at how I can afford a second property. Or will the equity in my first house act as security?

The application will need to stand on its own merits.

Is the first property jointly owned?

kingstreet

The plan, as it stands, won't stand up. Your income is too low, and in answer to your questions, no a lender won't allow the income from the rental if it's mortgaged and no, the equity in the current property won't be taken into account.

I suggest you remortgage property one onto a formal letting product, increasing the mortgage to 75% of the value. That would see the mortgage increased to £97,500, freeing up another £35k or so to your deposit for property two.

As long as the rental income exceeds the monthly mortgage interest, assuming 6%pa, by 25%, that should be fine. £900 a month rent equates to a mortgage of £144k at 6%, so that side is fine. You need to avoid lenders needing a high personal income for this.

Once the remortgage is completed, you then have say, £30k (after charges) to add to your £25k deposit, leaving you needing to borrow £130,000 - £30,000 - £25,000 = £75,000.

For your new mortgage on property two, you'll need a lender with an income multiple of over 4x, so you'll still have limited options and you'll also need one which is prepared to ignore the let property/mortgage in the background. The lower loan to value we've achieved with the remortgage should help that along.

I suggest you consult a good independent or whole market broker for advice.

GMS

What exactly is the issue with your partners credit rating?

lulaloo

Thanks for your replies.

The first property is in my name, I bought it before I met my partner.

My partner has 2 CCj's and numerous defaults against him over the past 5 years. We've cleared the debt completely within the last month, but I think even applying for credit together to see what happens would link us financially and could damage my credit?

GMS

When were the latest defaults/CCJ's. Have they all been satisfied? Have they conducted any credit satisfactorily?

NorthwestLL

Not a mortgage advisor so just a thought and maybe one of you could answer -

Could OP port the residential mortgage from house 1 to the new house (house 2), whilst taking out a brand new BTL mortgage on house 1 ?

kingstreet

Unlikely. Most lenders insist a port is used on a sale and purchase, simultaneous transactions. Some will allow a short gap between, perhaps up to three months, but won't take the rate from a property you are keeping to let.

There's no indication the rate of the existing mortgage is any good and worth keeping.

lulaloo

GMS wrote: »

When were the latest defaults/CCJ's. Have they all been satisfied? Have they conducted any credit satisfactorily?

Apologies for late reply, I have been away.

The last defaults were November 2012. He owed £10k to a number of lenders which he had ignored (some for 6 years), so his credit record will be pretty shot. They're all completely satisfied, and after looking at it again he didn't actually have any CCJs, just defaults (but A LOT of them).

I'm not sure what the options would be regarding applying for a joint mortage, as if his rating is so bad we can't get one, I will then be financially linked to him and it may affect my ability to get credit in the future.

I'm aware that there are bad credit mortgages, but most only seem to lend 60-70% LTV. Maybe if we applied jointly, the fact that my credit rating is good could bring that up to 80-85%?

lulaloo

We've also found a second property with a value of £85k, but our deposit has decreased to £20k due to unforseen circumstances, would this change things considering I would only be applying for a £65k mortgage on property two?

PierremontQuaker03

I am in a similar situation to yourselves in that I am looking into purchasing another property - another thing to think of is your tax situation, as you will be taxed on this potential £900pcm, which is why i agree with what kingstreet is saying and borrow as much money as you can (up to 75%) on your current property - and then these mortgage repayments can be used to reduce your tax bill -with the added advantage that the mortage you will be paying on the new property will be a lot less.