convert to BTL to buy new property?

vic11

Hi all,
Our current property is valued at £350K, has a residential mortgage of 150K, and has been rented out for 21/2 years. We bought it to live in but someone broke in around completion and completely flooded it & by the time we’d done 6 months of work to rebuild it I was about have a baby. So we stayed in rented and have been there ever since.

We take our responsibilities as landlords seriously & declare rental income to the IR BUT we haven’t told the Halifax we’re renting out/ asked for CTL. Crap I know but we’ve been dithering about whether to move into it finally (it’s 10 miles away & in a different town). Having decided to buy where my oldest is in school etc we put it on the market 2 months ago but no luck. Now we've found somewhere we’re desperate to buy for £315K but have to move fast as there’s loads of interest in it.

In a perfect world we would wait til our rented out house sold .. or failing that re-mortgage it to a BTL without early repayment fees to free up some equity to buy the new place with the idea of still selling. BUT our broker says the fact the house has been on the market will scare off many lenders who want ‘serious’ BTLers who will park their money long term. He thinks we should forget trying to get a BTL where we’re not tied in for at least 5 yrs and instead raise 25% of the purchase price of the new property either by 1) getting a new residential mortgage (with a higher LTV) on the place we’re not living in(!) or 2) borrowing the 25% deposit, both options with a view to taking out a new BTL for the new place we want to live in(?)

This all seems a bit weird to me. Surely there are some repercussions on living in your BTL if the lender finds out? I’m also worried about the Halifax finding out we’ve been renting – do they ever try to charge back fees? Our fixed rate deal with them has expired and we’re currently on a not very good SVR – call me crazy but I’m tempted to just call them and ask them what the options are. When we’re lucky enough to have around £200K equity in the current house it seems odd there’s no simple way of getting some of it out so we can buy. We have reasonable income and good credit statuses if that’s relevant.

Thanks in advance for any thoughts - can see there's loads of expertise out there!

kingstreet

What a dog's dinner.

1 You need to ask Halifax for consent to let, or remortgage to a formal BTL/LTB product. I would favour the latter as it will allow you to remortgage upto 75% of the value, or to a mortgage equating to rent of 125% of the monthly mortgage interest, assuming about 6% pa, whichever is the lower.

If necessary, take the property off the market. What's the situation with your tenants?

You may have to commit to being landlords for a couple of years, if that's the minimum early repayment period you can get on a LTB product.

2 Brokers should not be advising you to take a BTL product on the house you intend to live in, nor should they be suggesting you try to get further borrowing from Halifax under false pretences.

I suggest you find a decent broker who isn't trying to convince you that obtaining money by deception or fraud is a good idea. If it turns out this isn't a sensible plan, wait until you find a buyer. Breaking the law to get what you want is a step too far, IMHO.

vic11

Dog's dinner is about right! So too is the advice on getting a decent broker involved -- will get onto it on Monday, shall see what advice can find on this website.

We gave the tenants notice couple of months ago, then extended as they're buying themselves and needed more time - due to leave in May, may want to stay on. So we should be able to get a BTL on 25% LTV although it's been recently on the market?

Also any thoughts about what the Halifax will do to us woudl be helpful -- do they try to hammer you for the rate you woudl have paid to present if they get wind that you've been letting out? that's my main concern ..

Thanks v much for engaging!!

kingstreet

If you ask Halifax for CTL now, they will demand you change to a three year fix, around 6% with £1,000 fee and three year early repayment penalty. That would probably suit you less than the remortgage idea.

They probably won't try to charge you anything for the earlier years.

I suggested remortgage to a LTB product so you could realise enough of the equity to put down the biggest possible deposit to reduce the residential mortgage on your new property. This should also help you maximise the tax relief you get on the mortgage interest payments on the LTB product.

If you don't remortgage, what deposit do you have for the new purchase? Do you have that without lying to Halifax to try to get additional borrowing?

GMS

Firstly run a mile from the so called broker you have. Reporting them should also be considered.

What rental income do you get from the property per month?

You need to raise a decent size deposit for the new place as many lenders will restrict the LTV on a second property.

Do you have any funds to use for a deposit or will it all be raised on the current property?

kingstreet

If the property is worth £350k, you should be able to borrow 75% of that, or £262,500 provided the rental income is 125% of the monthly mortgage interest, assuming a rate of perhaps 6%.

Therefore, you'd need rent to be £1,640.

Otherwise, you need to take your rent income, divide it by 125% and multiply the result by 12. Divide the annual figure by 6% and that will give you the mortgage amount which can be serviced by that rent.

For example, if the rent is £1,000;-

£1,000 / 125% = £800 x 12 = £9,600 / 6% = £160,000 mortgage, so you'd only get £10k above your current mortgage amount.

Although the 6% I use is on the higher side, it's better to over-estimate in these circumstances. A broker will advise you better on this when your circumstances are clear.

holly_hobby

Naughty, naughty broker ....

1. Releasing equity out of the curently let property = BTL remortgage - either with Halifax or an alternative lender.

To try and obtain a residential remortgage (when it is not your home but let), would equate to a fraudulent mortgage application - and in reality should this be discovered by the lender, you may well find yourself on the CIFAS (fraud) register, with your broker claiming no involvement in your actions !

So BTL remortgage it is, with the interest element of the increased mortgage, also a permitted tax deduction*, as it is classed as capital withdrawal by HMRC (*capped, as this has always be let, at a mge amount equal to the original pch price - anything above this sum isn't a permitted deduction).

Kings. has explained the affordability matrix for BTLs (although some lenders also want a minimum earned income of 25k).

2. However, regardless of whether you release equity or not from your let property, you are currently in breach of your residential mortgage T&Cs - and as such they may demand immediate repayment of the mge and/or penalties. Your blds ins will also be invalidated due to the absence of lenders consent.

So, you MUST urgently seek consent to let from Halifax.

3. Regarding any new mge application for your primary residence - you will have to delcare the existing mge under your new application. T ypically the existing mge commitment will be ignored if the let property is self funding. To which some lenders also want sight of an AST and confirmation that the existing lender is aware of the let status of the property (another reason to come clean to Halifax, or remortgage onto a BTL mge).

4. You can't buy a property under BTL and live in it ... again this amounts to a fraudulent mge application, with possible ramifications noted above

5. I strongly suggest kicking the current "adviser" to the kerb, although it has to be accepted that there will always be rogue individuals whom don't care how they get their fee/sale/commission (including fraudulent applications), don't let yourself be party to such unsavoury business ..... after all if it all hits the fan, the book will firmly stop with you, whilst they will distance themselves claiming you acted without their knowledge or incitement. They should be reported to the FSA.

So ...

Your next step (whether you pch another property or not) and as a matter of urgency, is to contact Halifax re CTL permissions (as I say, whether you choose to remortgage to a BTL, will be down to if you want to stay with Halifax and/or release equity to fund a further hse pch).

Hope this helps

Holly

kingstreet

AFAIK Halifax options are the three year CTL 6% fix option or remortgage to BM Solutions.

vic11

Hi again, we only have about £15K set aside. A family member has offered to lend us £80K ie 25% value of the new property, however this was all about the original plan not to remortgage the current property but to try to sell it -- we woudl have to pay the loan back within a year.

.. SO if we're remortgaging the current property instead of selling it then no, all we have is what we can take out of it as deposit for the new place. So any tips re where to look for that decent LTB/ BTL deal would be v helpful. Woudl love to go direct as bit disheartened by previous broker experience ..

.. also should I sort the remortgage before telling Halifax? Am assuming form other posts seen that they won't offer me much as not keen on BTL business, or woudl just ask them ..

Thanks for your patience! V

kingstreet

You really NEED to tell us the rental income the property commands?

You'll need 15%, perhaps even 20% deposit to mortgage a second property in many cases. We need to work out if you can raise enough on the current property to do that and the rent is going to determine that.

kingstreet

... and to pay the £9,500 stamp duty, of course.

If you are going the LTB remortgage route, you don't need to tell Halifax.