Best Way to buy a second property

chrisrsmith

I want to buy a second property to rent out. Value approx 150K

I have a property worth 400K, 100K mortgage outstanding for 9 years. Current mortgage deal is 2.4% fixed for 2 years.

Q's:
1. Can I simply borrow more using my existing mortgage to buy the second property?
2. Can I have two mortgages at any one time?
3. Should I use a Buy to Let mortgage (interest rates - worse than my 2.4%). I have a guaranteed tenant (my son!)
4. Is any / all of the above legal?

Thanks
Chris

kingstreet

1. Yes. In principle. Ask the lender about additional borrowing.

2. Yes. You can have as many as you can afford.

3. A BTL mortgage on the subject property would be possible but this would be a "regulated" product as it will be occupied by a family member. Maximum will be 75% of the property purchase price.

4. Yes. As noted.

chrisrsmith

I called the mortgage company based upon your feedback and they stated they could indeed len me aditional money using my existing mortgage. In fact more than I was considering. BUT the APR would be 4.99% ouch.....

Santander!

kingstreet

Lenders' additional borrowing rates tend to be higher than other published rates and something around SVR would be what I'd expect.

You need to compare this with the option of a remortgage and meeting the ERP and discharge fee on your current mortgage.

a1a1a1

kingstreet wrote: »

1. Yes. In principle. Ask the lender about additional borrowing.

2. Yes. You can have as many as you can afford.

3. A BTL mortgage on the subject property would be possible but this would be a "regulated" product as it will be occupied by a family member. Maximum will be 75% of the property purchase price.

4. Yes. As noted.

Can I ask what you mean by regulated product? I'm considering renting to a family member.

Yorkie1

If more than 40% of a rented property is occupied by family members, the mortgage needs to be a "Regulated BTL".

I believe there are fewer such products available on the market, although others here will be able to comment in more detail.

michaels

One thing worth bearing in mind is that you can offset the interest on a buy-to-let mortgage against the rental income for tax purposes. I think you may also be able to do this if you take additional borrowing elsewhere (such as against your main home) but I'm not certain and it becomes more complicated.

chrisrsmith

Hi Michaels - that's a VERY interesting point Any accountants on the forum can advise against this please?

holly_hobby

A regulated BTL mortgage, means that one of the differences to a standard BTL arrangement, is that affordability is typically assessed on your income rather than the rental income, as with traditional un-regualted BTL mortgages (which are the type you see advertised etc).

Due to the regulated nature, many BTL lenders choose not to paddle in these waters ... which narrows the choice of lender and payrate.

With regards to offsetting of mortgage interest for tax purposes.

You are permitted to offset loan interest directly associated with the business (ie the let property) from your gross rental income.

If you remortgage your OWN primary residence to fund the purchase of the BTL (either wholly or partly), the associated interest IS a permitted deduction from your rental income, BUT there must be a clear audit trail between the 2, and you CANNOT offset any apsect of a mge secured on your residential property that has NO RELATION to the business (ie not used to fund the purchase, repairs or any capital injection).

With regards to the issues regarding sourcing a BTL regualted mge, and if you have the equity in your own home, you may want to pch for cash at this point.

Later on, when son moves out and if you rent to unrelated parties, you could seek a BTL remortgage to withdraw some/all (subject to suitable rental assessment, and depending upon if the property has increased in value due to max LTVs), of the capial invested, and pay that back off your residential mortgage to reduce your exposure there - again interest is a permitted deduction* as its classed as capital withdrawal (* capped at a mge equal to the original property pch price).

Hope this helps

Holly