Can I get a better mortgage if I use my future and current house in the request?

lawnor

My friend and I got together and bout our first house together a few years ago with the plan of one day buying a second house and renting one of them out. Through overpayments we are about 10 years into our 25 year mortgage and I have done the maths and I believe if we don't have any big expenditures we could pay the remaining off in 4 years time if we wanted.

So in 4 years time (possibly a little longer to save up a deposit) I expect to be shopping for a new property. Our currently house cost us around £110,000 and that was about the best we could get on our earnings at the time without selling our souls. If we want to get a house for £150,000-£200,000 would we be able to get a mortgage on both the future hosue and the house we have already payed off in order to secure a bigger deposit? Would the extra collateral help keep the interest down a bit? Would our renting out the older house affect the mortgage in any way?

My house mate is also thinking of starting a run at home business that will benefit from a bigger house. If we want to try to do this before we have finished paying off our current mortgage how would that affect things? I know we would need the banks permission before renting out our current house.

I'm not expecting definitive answers here. I'm just thinking ahead and wondering what my options are so generalities should be helpful enough. This may have been answered elsewhere, but I'm not really sure where to begin searching for the answer, short of booking an appointment at my bank and I'm not ready to do that yet.

kingstreet

The properties and mortgages will be completely separate, unless you look at something like the One Account, where you'd have both properties on the same account. The rate is SVR only though, 4%.

I don't know any other lenders offering a cross-charge facility at the moment, so the best you could hope for is raising a deposit on one, taking the LTV upto maybe 60%, to keep the LTV on the other lower, also below 60%, if possible.

That way you'll get the lowest rates on both.

lawnor

So are you saying I would have 2 mortgages, one on each property with the mortgage on the first being spent as a deposit on the second, or that they would just take the value of the first as a deposit on the second, but we would pay one mortgage to the value of both houses?

Sorry of these are stupid questions. I don't really understand mortgages (I had to google SVR and LTV to understand your post). If i understood this stuff I'd go do my own research. I'm just trying to work out if we could afford a better house if we wait to pay off the current mortgage early, or if we are better off buying a second house first with that money, renting the older house out and paying 2 mortgages at the same time. If the difference is relatively negligible then we can do what we like I suppose.

Ultimately I'd like a better house sooner, but I'd prefer to wait a few years if it means financial security, a more expesive home and smaller montly mortgage payments.

kingstreet

Unless you go the One Account route where you'd have one mortgage account with two properties securing it, the only other way is two separate mortgages, on two separate properties.

You would then simply equalise them to ensure you get the best rates from having the loans to value below the usual "best rate" level, 60%, if you can.

Sorry for the jargon.

Let's say you have property one, worth £100,000 with a £30,000 mortgage. You remortgage that property upto £60,000, using the £30,000 you raise as the deposit for property two.

Realistically, you can remortgage upto 75% and still get very good rates, if you need to borrow more.

As you have no mortgage on property one now, you could remortgage upto 75% onto a buy to let product and use the money you raise as the deposit for property two, the one you intend to live in.

lawnor

A little jargon is fine as theres google for that and it helps me learn so I can cope with a lot of jargon later. Your message was ok. Its when it all becomes jargon it becomes unreadable. Thats why I'm asking on here, rather than trying to make sense of anything I would get from a leaflet or website from a bank.

I think I understand what you are saying. In short, so long as we stay below borrowing 60% on both properties we won't be paying an unnecessarily high rate. So advance paying off our first mortgage before getting a second property gives us no real advantage if we would just borrow that money back straight away for a deposit on the second property.

So if we wanted to buy a house for 200,000, and we had 50% left to pay on a £100,000 property, we would want a deposit of £60,000, £10,000 of which we could get back from our previous overpayments on the first property. We could put a lower deposit and take more out of the first mortgage but the rates would not be as good. We would still be paying 2 mortgages then, but renting out one proprerty would hopefully pay one.

I assume a bank would be happy with us doing that, even if they require a few small changes to the mortgage on that property. Would they likely increase the rates due to the increased risk on the property or the risk of payments not coming in due to no one wanting to rent it? I think there are insurances you can take out against such eventualities but I haven't looked in to them yet.

kingstreet

lawnor wrote: »

So if we wanted to buy a house for 200,000, and we had 50% left to pay on a £100,000 property, we would want a deposit of £60,000, £10,000 of which we could get back from our previous overpayments on the first property. We could put a lower deposit and take more out of the first mortgage but the rates would not be as good. We would still be paying 2 mortgages then, but renting out one proprerty would hopefully pay one.

With the current £50k (50%) mortgage, you'd only be able to borrow another £25k when you remortgage, as the maximum loan would be 75% of the £100k value. The rate would not be as good as it would be if you borrowed only £60k.

To get the best rate for the £200k purchase, you'd need a deposit of £80k, to get the mortgage down to £120k, 60% again.

If you can't get to 60%, at least make sure you get the best loan to value, and hence the best rate on the bigger mortgage.

You're likely to have to remortgage onto a BTL product to be able to do this. A "residential" lender is unlikely to lend you more when you plan to let the property.

lawnor

Oops. I cant do maths! I know 60k isnt 40% of 200k. Dunno why I said that.

We wouldnt have to borrow more. We have overpayed by £22k already and over the next 4 years I hope to overpay the remaining balance. Our mortgage allows us to take overpayments back at any time. So we could just reclaim all our overpayments and then switch to a BTL plan, after having discussed it with the bank to make sure we can get everything we need.

Looks like we should wait 3-4 years before approaching a bank or a financial adviser to sort out exactly how much we could get. In that time we should have enough overpayed and in our pockets to get around a £150-175k house. I can now work out a time plan for what we could afford approximately and when.

Thank you. You have been very helpful.

kingstreet

Presumably this is Nationwide?

If it is, requesting Consent to Let will see you charged a £30 fee and your interest rate increased by 1.5%pa. Remortgaging to a formal BTL arrangement may see a better rate, but you'll need to compare at the time, as there will be fees to pay.

lawnor

Yes. We are with nationwide. They were best for us at the time. When we do this we will sit down and stare at the numbers much closer, and probably drag a mortgage adviser in so as to simplify everything and remove the likelyhood of us making a dumb and costly mistake.