BTL advice please?

Louwalshy

Hi I'm new here so please forgive any errors!
My husband and I have recently noticed that there is new development near to us that we would love to move to!
As my hubby is self employed and doesn't have a pension he would love to rent out our current property and get a new mortgage.
I need some help with figures etc to see if its going to be feasible please?
Our current property is worth approx £150000, we have approx 14yrs left on mortgage, owing around £95000? We could prob rent this property for £650-700 PCM.
The new property will be around £160000. Do we get a 25 yr mortgage? How much will fees be?
We also have the option of a friend buying 50% of our current property to take some of the strain from us if its vacant for a while?
Sorry for all the questions but as I say we are very new to this but would love it to work out.
Thanks in advance x x

Thrugelmir

Louwalshy wrote: »

As my hubby is self employed and doesn't have a pension he would love to rent out our current property and get a new mortgage.

Have you weighed up the various options to fund a pension?

I ask as BTL property isn't the most tax efficent of the options available.

Nor the best at the current time.

Louwalshy

Not looked at pensions at all for him.
I work for the NHS and have a pension with them though x

Thrugelmir

Back to your original questions. As I digress.

Selling 50% of a property is not a practical proposition for many reasons. So I'd park this idea for the moment.

How much deposit can you afford to put down on the new property?

Louwalshy

Well that maybe the spanner in the works, we don't have any spare cash, we were planning on using the money from this property?

kingstreet

You can't sell part of a property which is mortgaged. The lender would insist that the "buyer" become a party to the mortgage before it would consent to the change of ownership.

If you owe c£100k on a value of £150k, the new party would have to take on responsibility for what you already owe!

How much would they give you to accept that? More likely you would be paying them!

You would need consent to let from your lender, if you wish to vacate the property and let it. This may not be granted so close to a transfer of equity, if it actually took place. Remortgaging to a BTL product could be possible, but as the maximum loan is 75% and you already owe about 66%, there is only around £15k of borrowable equity, if your valuation is accurate.

A BTL product needs the rental income to be 125%, or more, of the monthly mortgage interest at 6%pa (ish). On a £113k mortgage, that means rent of a minimum of £706 per month.

We haven't discussed your husband's income position at this point.

I suggest you have a sit down with a broker to see just how feasible this plan really is...

Louwalshy

We were thinking of re mortgaging our current property with our friend owning 50% so that we can use that cash then to use as a deposit on our new property?
My husband is self employed builder so his wages varies greatly

kingstreet

How much are they going to give you for this 50% share and are they willing to take on responsibility for ALL the mortgage, which is how a mortgage works - it's a joint and several liability?

You only own 35% of the equity, or thereabouts if your valuation is correct.

As I said, the maximum mortgage on a BTL is 75%, so that means you can't borrow more than £112,500 on £150,000 value. You already owe 90 odd, so you'd only have about £15k to pay your deposit, stamp duty, fees etc...

Then there's the question of the rental income?

The there's the purchase. Your husband needs steady net profit figures for the last couple of years to have his income taken fully into account and you'll need 10% deposit, £16k on a £160k purchase.

These are issues and questions you need to answers before you can proceed. A broker is the best option for that.

Louwalshy

We are presuming he buys 50% so £75000? Then we were thinking we could get a £150000 (less a joint deposit) mortgage on this house then use the £75000 towards our other house?
Sorry if I sound completely thick! I'm not I just thought it maybe straight forward lol

marathonic

Louwalshy wrote: »

We are presuming he buys 50% so £75000? Then we were thinking we could get a £150000 (less a joint deposit) mortgage on this house then use the £75000 towards our other house?
Sorry if I sound completely thick! I'm not I just thought it maybe straight forward lol

Note: The below information assumes a COMPLETELY flexible bank with no issues regarding underwriting or equity transfer - which will obviously not be the case.

If he buys 50% for £75,000. You own a portion of a property worth £75,000 and have a mortgage worth £95,000.

If a bank only allows BTL at 75% LTV, you'll only be allowed a £56,250 mortgage on your share.

That means you'd have to use £38,750 of the £75,000 to pay down the mortgage to a level that is satisfactory to the bank.

That would leave £38,750 remaining. If you detuct £3,750 from this for moving costs and fees, you're left with £35,000.

In other words, leaving potential legal and underwriting issues aside, you would not have £75,000 towards your new house as you state in the post above - more like £35,000

marathonic

Is your husband a higher rate tax payer or does his employer's offer a salary sacrafice scheme or contribute to a pension when he does?

If the answer to any of these three questions is yes, my advice would be to do the following:

• Reduce your current expenses as much as possible,
• Sell your current house for £150,000
• Pay off the £95,000 mortgage
• Keep £5,000 for fees and £32,000 for a 20% deposit
• Purchase the new place with as long-term mortgage as possible
• Put the remaining £18,000 equity from the current house in a high interest savings account (instant access)
• Increase your husbands pension contributions to the maximum possible and use the £18,000 to subsidise living expenses
• When the £18,000 is depleted, reduce his contributions to the maximum level that will still allow you to meet living expenses

I see the above as a much better plan for retirement than the complicated idea you've come up with.

Should you go ahead with your idea, there's a reasonably high chance that you'll be back here asking about the legalities involved with joint property ownership and friendships gone sour.

It doesn't matter how good or how long you've been friends for - sometimes friendships and finances don't mix (in fact, most of the time they don't).