Mortgage Options

PierremontQuaker03

Hi, I have posted a similar thread before as I am undecided what to do but now I have seen a House that I want to go for. The house is up for 240k but I hope to get it for 230k.
I have 25k in savings and my current mortgage on my current home is approx 25k and my house is worth 140k. Just to complicate things further I am wanting to rent my current home rather than sell it.

So should I pay off my current mortgage with my savings leaving me with zero savings and then approach lenders with the fact I can borrow 75% (100k) on my current home, renting it out, and then fund the remaining 130k on a repayment mortgage (I earn 40k per annum.)

...Or should I keep my 25k savings use that as a deposit against the home I want and then transfer my current 25k mortgage to a BTL and increase it to its maximum.

Also from a tax point of view would it be best to pay off my mortgage then transfer the house into my wifes name so she can have the income as she is a lower rate tax payer and then using that income pay off the BTL mortgage.

Sorry for all the questions, any advice would be much appreciated.

ACG

You need to sit down and go through the figures, either yourself or with a broker. Its difficult to say which is the best way without knowing all the facts.

Residential mortgages are lower rates and fees than buy to let mortgages... but residential mortgages are secured against your property.

hamster2013

from a tax point of view - the more interest you pay on the rental property, the less tax you will pay, as it will be deducted from the rent you receive.

from a banks point of view, they will need to see tax returns before they can take into consideration your rental income - otherwise they will not take it into consideration.

lets see how much you need:
house - 230k
stamp duty = 2.3k
solicitor fee = 1k
bank and valuation etc = 1k
moving etc = 1k
total = 236k rounded up

option 1:
you max out your current home to £100k BTL mortgage - at the rate of 6% over 25years, your will have to repay £644/month.
lets assume you can rent it out for £800/month - you will therefore have to calculate your annual rent income - interst (around 6k) - expenses = your net rental you need to declare to tax.... see if you can afford it before going down that route.


you therefore now have £100k - and need to borrow £136k
this might just work in terms of your earning being 40k and banks lending up to 3.5-4x the annual income.... so it will be a stretch for those offering good/better rates.
HOWEVER, you now have a debt of 100k that banks will not see as a BTL until you can show rental income- but as an expense!
so that will hit hard on your affordability
if you earn 40k, your net monthly income is around £2.5k
remove the £600 BTL debt from there, and you are left iwth a net monthly income of £1900
when you borrow £136k over 25 years (depending on your age - banks might or not go above that) at lets say a good 3% rate, you will have to pay monthly £650 mortgage repayment, leaving you with £1250 to run the household, from the bank's underwriters point of view
so if you have credit cards or any other loan (car etc), then that will damage it even more !



option 2:
you sell you current house for £130k - you pay no tax on that £130K - you put up the £25 deposit and you borrow £81k
at that LTV and without any other debts, good rates will come your way, and you can probably secure an easy 2.49% from HSBC -
over 25 years, that will make your monthly repayment to £363 - that will put you in a better position to clear your mortgage debt and save for a BTL separately which you can venture at a later stage.


option 3:
I advise you sit down wiht a financial advisor, or an excel worksheet, and work out what is best with projecting yourself 10 - 20 years down the lane.