Mortgage for secong home

rockall81

Hello,

Apologies if this question sounds very basic.

Lets say a person has first property with no mortgages on it, and he intends to rent it and plans to buy second home with 15% deposit and looks out for a mortgage, what options does he/she might have?

Thanks for the help in advance.

Thrugelmir

As the first property is mortgage free. Then makes life far easier. As there's no financial commitment to allow for.

The mortgage options will depend on your circumstances.

rockall81

So will the second mortgage be cheaper? what does the lender depend on ?

Thrugelmir

Not a second mortgage. As you'll only have one still. No discounts to speak of.

Income, age, debts etc will determine what a lender may or may not offer.

kingstreet

TBH you'll be in exactly the same position as someone with a 15% deposit, without an existing property.

holly_hobby

As kings states - if the first property is to remain unencumbered (mge free), your new mge application will be treated as a straight forward single mge app, with your 15% saved deposit.

If you intend to let your first property out, you however may want to consider releasing equity out of this (via a buy to let remortgage) to help fund (partially or entirely) your new pch.

This is because the interest on any mge on your let property (which can be entirely interest only) and up to a sum equal to its value when it entered commerical let, is entirely a permitted deduction from your gross rental income so reduces your tax exposure (along with other permitted management, service & prof fees, essential maintenance etc), as it is classed for HMRC purposes, as business capital withdrawal.

If you do this, it essentially means that your business (aka the let property) is effectively funding/funded your resi pch with permitted tax breaks (which your resi mge doesn't attract).

The above is a widely used and well practised, effective tax mitigation method of using your business to reduce your own personal outgoings - but you'll need an experienced adviser (or a tax practitioner) whom is familiar or understands the exercise and can walk you through this whilst ensuring you understand the process thoroughly.

The BTL equity release mge and affordability, will be based on a max LTV of circa 75% (as a first time landlord), and on rental income, which should be at least equal to 125% of mge interest (use 6% as a ballpark calc fig), with a majority of BTL lenders also requiring a min earned income of 25k - so this may place a natural lower ltv limit on the amount of equity that can be released. Associated BTL interest rates, lender admin and product fees are generally higher than on a residential mge (due to borrowings being commercially based).

Having said all this .... you may wish to keep your let property mge free/unconnected to your new pch to keep things simple - which is entirely understandable and your choice.

Anyhoo ... hope this helps with another view of the situ.

Holly x

rockall81

Thanks for all the answers