advice on what option to take

want2bmortgage3

i will try and keep this brief!

i have a residential repayment mortgage with consent to let on a 2 bed flat which i want to eventually sell due to 3 main problems:

-lease shortening
-porch will need replacing eventually
-roof movement (1st floors problem although same building)

ignoring these problems for now, i currently have it rented out and happy to leave it like that until tenants decide to move out. the rent is enough to pay the mortgage and a small surplus in case of repairs.

i now need to find somewhere for myself, and i have two options:

-i rent a one bedroom which would be about half my wage
-i remortgage the above property as a buy to let interest only and move my existing mortgage to a new place where i can live

my view is if i buy another now then later on i can sell my first property and still own one, which would be good if prices rise.

the downside is i have to tie up all my available funds in order to get another mortgage now.

thanks in advance to anyone who can offer some advice

BitterAndTwisted

Have you investigated whether you can actually get an interest-only BTL mortgage? How much equity do you have in this property? It's my understanding that in order to qualify for a BTL mortgage you will need 25% equity and that the prospective rent will be 125% of the mortgage-payments.

"Lease shortening" How short is the lease? The shorter the lease, the less the property could sell for. You could get to the point where the short lease may make the property unmortgageable and may only be available to someone buying with cash. And may not cover your outstanding mortgage.

"Roof movement: (1st floors problem although same building)" Are you absolutely certain that the responsibility for repairing or replacing the roof lies solely with the upstairs leaseholders? If so, this would be unusual, to say the least.

want2bmortgage3

hi bitterandtwisted,

yes i have a quote for a buy to let and as you mention, the deposit is 25%. i can just afford to do this, like i said it would use up all my funds/available borrowing.
i didn't want to go in too much detail but can provide figures if need be.

the lease is at 67 years, i have had 2 previous quotes to renew the lease and they were 13.5k then 15k a year later including all the fees. i know you can take it to tribunal if not happy with the quote but no plans on renewing at the moment.

it may be the case that the roof problem is divided between all 6 properties within the block. the trouble is the owner of the upstairs property (who has physical access to the roof) is uncooperative and wouldn't allow access to a surveyor last time i tried. this is why i have left it, i believe the trusses (?) have moved slightly and you can see evidence in that the roof tiles don't overlap the end of the wall as much as they should.

thanks for your reply so far.

Yorkie1

How long have you had these tenants and do you have any indication how long they may wish to stay for?

At 67 years, your lease is bordering on unmortgeable already. If you don't start the extension process off before eventually selling, the new owner will then have to wait a further 2 years to apply to extend (unless there's consent from freeholder to a sooner application), and the price is going up rapidly - to a point where it will probably be not financially viable to extend, compared to the sale value.

Also the structural problems will only become more evident the longer you leave it.

Have you factored all of the above into your assessment of the situation?

I would be looking to get shot of this property sooner rather than later.

want2bmortgage3

yorkie
i have no idea when they will leave, but if they have another child then they would be entitled to a bigger property.
the rent has been paid every month so i haven't felt it urgent to sell straight away.
i will double check with my mortgage broker whether he can see any problem with the length of lease.
the structural problems are evident to the trained eye (full survey/builder) but not to joe bloggs.
the flat is in a decent area with high demand and high prices so that should be a good thing even if i had to take a reduced price due to the lease.
thanks for your message

Yorkie1

I'm slightly concerned by the idea of tying up all your spare capital in going onto a BTL and buying a new place.

You don't seem to be 100% sure who has financial responsibility for the structural repairs. Is there a sinking fund which you & all other flat owners pay into regularly for this sort of eventuality? You need to check your lease for the details. The last thing you want is to be landed with a bill for £000s and be unable to pay it.

It just seems that your plans could involve making yourself increasingly vulnerable financially on several fronts, with few options then available to rectify the worst case scenario if it arises.

Also, you mention that your tenants would be 'entitled' to a larger property if they had another child. Are they on a council housing scheme of any sort?

If so, whilst I am not an expert in the rules, I suspect that this eligibility wouldn't translate into a bigger home for some time. I would anticipate your tenants being there long-term, which means that your plans to deal with the lease issue when they leave, is simply putting your head in the sand.

Where are you living at present? If you do not plan to sell the flat, I wonder whether there is merit in trying to save up to deal with the lease while you can still afford to do it - and therefore reducing your other outgoings as much as possible to do so?

want2bmortgage3

yorkie,
there are several blocks of 6 maisonettes/flats. some, like mine, have their own garden and only pay ground rent. others have communal gardens and garages and pay maintenance charges as well as ground rent ( I assume for having the grass cut).

Regarding the roof, it was a full survey from a potential purchaser a few years ago that brought it up. My own basic survey showed no problems when i bought it 6 years ago.it could be that it has moved slightly but will not move again, and might not need anything doing.
All the other occupiers of the 5 other flats haven't noticed and only the flat above knows about it and wasn't prepared to invest any time or money looking into it.

Same goes for the porch, only on close inspection can you see the signs of movement. the porch could probably be left for many years as it appears movement has stopped.

You are right, my tenants have housing benefit paid to me and even though they would like to move elsewhere they have little say in the matter as very few landlords accept HB tenants.

Back to the lease, and I have no idea by how much the quote will increase as the lease goes down. I could start the renewal process now but i was put off by a clause in the quote which said they will increase ground rent from £35 to £250 a year immediately and even further increase it later on!

Even if I sold the place in 7 years and the lease was 60 years for the price of the mortgage £112000 (meaning I am estimating a lease renewal of £40k) and I lost my equity at least I'd have had 7 years rent and the small profit from that?

My own position which i want to change is staying at parents, it is becoming increasingly frustrating that I have worked for the last 12 years and have a property with about 40% equity but i am blocked at every turn in the aim to have my own place (whether owned or rented).

tim123456789

want2bmortgage3 wrote: »

hi bitterandtwisted,

yes i have a quote for a buy to let and as you mention, the deposit is 25%. i can just afford to do this, like i said it would use up all my funds/available borrowing.
i didn't want to go in too much detail but can provide figures if need be.

the lease is at 67 years, i have had 2 previous quotes to renew the lease and they were 13.5k then 15k a year later including all the fees. i know you can take it to tribunal if not happy with the quote but no plans on renewing at the moment..

These figures are in the right ball-park so I doubt appealing would be worthwhile.

The cost will only go up as the lease shortens (by about 2K pa), and delaying is going to cost you more than financing today's price.

tim123456789

want2bmortgage3 wrote: »

Back to the lease, and I have no idea by how much the quote will increase as the lease goes down. I could start the renewal process now but i was put off by a clause in the quote which said they will increase ground rent from £35 to £250 a year immediately and even further increase it later on!

Oh! A statutory lease renewall (of plus 90 years) is for a peppercorn rent and will include the costs of buying out the ground rent.

For 35 pounds pa that will be about 500 pounds, and the "value" of the new ground rent is about 4K so a statutory renewall ought to be 4500 pounds more than this non-statutory one that they have offered you.

Having said that 20K to extend a 65 year lease on a 150K (value) property is still in the right ball-park.

want2bmortgage3

Thanks Tim
It appears from the responses that It may be wise to look into the lease renewal. However, doing this would mean spending at least 15k which is the money I need to buy another place.
So therefore that wouldn't be possible, and my only option for my own situation would be to rent somewhere.
I just thought it would be a good thing to buy if at all possible instead of rent.
To be honest I think I regret buying this property. Maybe I was naive, I just didn't know a thing about leases and didn't have a full survey done. I just decided it was the right price in the right area and went for it.
The whole lease thing is annoying, when you say you buy a flat or house you expect to own it not have some lease company in the background that owns the land and can do what they like once the lease runs out or charge a bomb to renew it. Whats the difference to just renting?!

want2bmortgage3

Is there a definite cut off point when I couldn't get a re-mortgage?

I Guess there are some people out there who wouldn't touch leasehold properties for precisely this reason, I wish I knew this before!

It doesn't make any sense how some leases are 900 and some 90. a huge difference.

Anyway the view I'm getting here is not to buy another place but spend my funds on the lease and then rent somewhere myself.