Tenancy agreement required before rental income considered for 2nd home mortgage app?

doc_p

Hi,
I want to take a 2nd morgate to buy a house and rent out my flat which still has a mortgage balance (will be obtaining a consent to let from halifax for this).
Spoke to nationwide yesterday and they will only consider the rent from my flat as part of my income when I have a tenancy agreement in place and have collected 6 months rent. This means my current affordability is well below what I need to get the house. Is this the standard approach by all lenders? Apart from moving into temporary acomodation and letting out my flat are there any other legally accepted ways I could get round this?
Many Thanks,
Aminu

Dave_Ham

There is likely to be a solution (without temp address in between) although either get calling lenders or call a broker.

This should be easy enough for a broker to arrange, subject to the detail.

All the best

holly_hobby

Nationwide will only accept a (portion) of rental income (verified by AST and bank statements) if the let propety is unencumbered (mge free), with a max 85% ltv on the 2nd resi property. A request for AST and statements is reqd in verifying the let property is self sufficient rental wise (@ 125% of mge interest).

Therefore the fact the let property will remain mortgaged with Halifax (under CTL if approved), will rule out inclusion of any element of the rental income with NW, although it may well pass the self sufficiency stress test.

To be fair the assessment of rental income on a mged property, is the same with most BTL lenders, unless you are a professional landlord.

If however, the property is self sufficient (ie rental income covers mge), there are a number of lenders whom will set this commitment aside when assessing affordability for your resi mge application (although equally there are a few lenders whom will include the mge on the let property within their calcs).

So to that end, engaging a broker will not only facilitate sourcing a lender with more generous affordability, which may, even without inclusion of your surplus rental income, meet your needs, but whom will additionally source a lender whom will effectively ignore the existing mge on the let property (subject as I say to self established sufficiency, and possible reqd sight of an AST).

Your broker will also assist in sourcing a specific BTL mge, should Halifax refuse your consent to let (CTL) application and/OR if you want to release equity from the let property, to increase your deposit and reduce the amount of mge (and income) reqd to facilitate your new residential mge - whilst of course supporting you throughout the whole application process and beyond.

Without in any way giving a lecture, just ensure before you become a landlord that you are familiar with the level of rental income and sustainability that can be achieved, by thoroughly assessing your market and target audience, and that you have some contingency funding set aside for emergency costs. Finally ensure you offset all permitted deductions from your gross rental income, with your tax return being by annual self assessment.


Hope this helps with the bones ... wish you well

Holly x

doc_p

Dave, Holly,
Many thanks for the very through responses and advice. I will get in touch with a mortgage broker straight away. Will let you know the outcome

Regards,
Aminu

kingstreet

Just to confirm what holly said, here's the extract from Nationwide criteria;-

Clients with Additional Properties

Where your client will own more than one property on completion of their new loan with Nationwide the maximum LTV is 85%. Purchase applications for these clients should be keyed as a Second Property to ensure the correct LTV limit is applied.

If your client owns more than one property, we require all addresses and mortgage details.

Let properties are treated as self-financing where the rent received is at least 125% of the current mortgage payments. Where let properties are mortgage free a percentage of the total monthly rent received will be treated as income. Rent must have been received for a minimum of one month at the point the application was submitted and we will require up to date bank statements to confirm this.

A copy of the signed tenancy agreement is required.