Joint mortgage or two separates?

missk_ensington

Hi,

I got married in December and at the point of getting married my husband and I both owned our own houses individually. I live in his house and mine was rented out, although now on the market to be sold and his is also on the market to be sold.

It had always been our plan to retain two properties in our own right - the higher value one (his) to live in and mine to renovate, as we are both amateur renovators/developers and do a house to 'flip' every 12 months (we have done this for about 10 years). However living in a construction zone isnt ideal, and now I am expecting our first baby so living in one and renovating the other seemed ideal.

However I am since wondering if we would be better putting everything in to one house, (including my equity) meaning we'd have a low LTV mortgage and then use that as security for the second one as and when something comes along with potential?

I think we'd both prefer to have all our assets in joint names if possible, rather than keeping everything separate as 'mine' and 'yours', but I wondered if we would struggle to borrow on a second property in this climate thus making it easier to just carry on having a house each?

getmore4less

You can't(generaly) use a house as security on another, you need to have a loan on each.

One approach might be to have the largest offset you can on the first place and then dip into the funds when the opportunities happen.

Porting the mortgate when you flip by moving into the place just done up might be an issue.

Are you running this as a business yet? or have you managed to keep it unde the HMRC radar so far.

holly_hobby

You can not port a mortgage product to a property that you don't legally own, (Hubby is the owner), although you are a beneficial owner - as Hubby is already the mortgagor with a mortgagee and existing 1st chargee, so this would further prevent this.

If you retain your current property (then sell and pch a 2nd), and wish to port your existing residential mge to any new property (that you subsequently buy to renovate or to let) - as that would not be classed as resi lending, but commerical finance, the lender would not permit this. If you already hold a BTL mge at that time, then porting may be an option to your new prperty, (subject to it being in a mortgageable state, pchd to let, and with suitable status and lenders permission), thats if the BTL payrate is actually worth keeping.

Moving on, from what I understand, you are considering selling your old home, and once sold, using the free equity to reduce the mortgage held on your primary residence (which is in Hubbys sole name).

In essence thats fine, just be aware of any early redemption charges that the lender may apply to a lump sum reduction - which you could absorb, or drip feed the overpayments within their max annual permissions.

Moving to your other wish to dip into the property market re renovation projects etc, using the free equity in your curent home (after your lump sum reduction) to do so.

In essence that isn't impossible - but if you have anything other than an open mge arrangement (where you may withdraw overpayments without further status assessment), you need to consider that to withdraw the equity/overpayment, will be classed as a further advance under any straight residential mge (which I assume hubby holds). The issues being that Hubby may no longer meet the lenders new borrowing criteria - (which does change along with their business model), be that under a further advance request or even a remortgage application to an alternative provider.

Even if status and income is ok, the max amount of equity that can be released will be based on the property valuation and max LTVs at the time of application. For example, you reduce Hubbys mge borrowings by 80k when you sell your property, but that MAY NOT mean that you can withdraw the same 80k in any equity release exercise. (for the reasons discussed, status, lenders criteria, property valuation, max ltvs).

Of course someone's going to say, add you to the mge to help with the credit score, but that doesn't always work either. And (if your income isn't needed) may do more harm than good, esp if either of you now have any payment blips in the closet, which will still be active at the time of transfer of equity and mge application, as you will now be financially linked, where previously you weren't. If you are both clean then this shouldn't cause an issue, but just something to consider if either of you have any recent missed or late payments, or unexpired defaults or CCJs.

So lots of issues to consider here regarding a straight forward lump sum reduction - if your objective is to withdraw the equity at any point in the future.

A solution may be to instead (assuming Hubbys mge isn't already on this basis, and status permitting), switch to an offset mortgage.

This means that you can sell your property, and place the free equity into your linked offset savings account. This will (with typical set ups) have the effect of reducing the mge amount exposed to mge interest, the trade off being that no savings interest is generated on the capital deposited, (due to the offset nature of the arrangement).

But importantly it means that you will retain full unrestricted access to the capital, and may generally withdraw paritially or wholly as you wish (of course as you reduce the capital in the linked account, the chargeable mge balance will increase - but in essence this would be no different than seeking a further advance or remortgage, albeit without the product/admin fees). But of course when you have more capital (ie you sell your renovation project, you can pop that back into the linked account, and round and round we go).

One thing to be clear about with Offset mortgages is that their interest rates are generally NOT as keen as a traditional residential mge, and there may be with various providers, a celing with regards to how much of capital on deposit may be offset against the linked mortgage (ie there is a minimum amount of mge capital that interest will be charged on - terms will vary between providers).

Anyhoo, hope this gives you some food for thought on how you want to play the mge side of things.

NB - If you sell your prev home within 36 mths of moving out (vacation), under current CGT regs you will be free from any CGT assessment, regardless of how great or little the gain (which is the difference between pch and sale price).

Sale after the 36 mths cut off period, may expose you to CGT on your prev home, but I'll leave going into the whys and wherefore's as it isn't relevant at this time (given you only moved out 5 mths ago), and may unnecessariy complicate this post.

And just to top and tail, renovation projects (ie property bought solely as an investment, with the intention for generating a profit on re-sale) will instead be subject to Income Tax on any (net of deductions) gain at disposal, whenever that occurs ie there is no exemption period.

Hope this helps ....

Holly x x