Advice for friend wanting 2nd mortgage

Moonraker71

I'll try and keep this brief but it's slightly complex. My best friend (let's call her Sarah) owns a 50% share of a ground floor flat with her brother. It was originally bought 3 ways with her sister and brother as a BTL property, but the sister has since bought another property and is no longer on the mortgage.

Sarah's brother also owns the basement flat below and lives in it, and he is also the freeholder for the whole building (3 flats in total). The original idea I think, was that they would like to get the top floor flat at some point too, and convert all three back to one house, but that flat has never become available.

Originally, Sarah was living with her partner elsewhere and the BTL flat was rented out. About 5 yrs ago her partner left her, and she was unable to maintain the full rent on their house, and ended up temporarily moving back in with her parents. When the people in the BTL property moved out, she moved in as the mortgage payments were much lower than rent she'd have to pay on a similar property. She's still there today. I know technically she shouldn't have done this due to rules around BTL mortgages but this is the situation as it stands.

Now she needs to move, both for work and personal reasons, but she is not sure how to go about this. Ideally, she would like to keep her share of the BTL property and just buy somewhere else, but I'm not sure she's going to be able to do this. Could someone explain under what circumstances she *would* be able to get a 2nd mortgage?

I'm imagining that for it to be a go-er, she would need to move out, get it rented again, and then be able to prove to a new lender that the rent income is over and above the mortgage payments. Is this the case?

The other options I see are for her brother to buy her out (not sure how this works in terms of her getting any equity out of it) or for them both to sell up and split the proceeds.

Is there anything I've missed? I'm obviously going to advise her to speak to a competent broker.

p00hsticks

Moonraker71 wrote: »

I'm imagining that for it to be a go-er, she would need to move out, get it rented again, and then be able to prove to a new lender that the rent income is over and above the mortgage payments. Is this the case?

You seem to be implying that she just kept up the BTL mortgage when she moved in to the flat without letting the morgage comany know it was actually her living there. Is that still what she has ?

If so, then surely what she needs to be looking for is a residential mortgage for the new property she is (presumably) going to buy to live in, which would be based on her income as a whole - nothing really to do with the BTL propery / mortgage which stays in place.

Unless .... does she actually work / have other income or is she wanting the rental income from the flat to both cover the BTL mortgage on the flat and the mortgage for the proeprty she is going to buy to live in ?

Moonraker71

Hi, thanks p00sticks. Yes that's correct. The original BTL mortgage is still in place, and she didn't let the mortgage company know, as far as I understand.

I think the issue is that she would ideally like to stay in this property right up until the point she buys a new place, and then deal with finding new tenants once she's moved out. She does not want to move out of this property first and rent it out, before finding a new place to buy. She doesn't want to have to move twice, essentially, which I can understand.

But if she just stays put, won't the lenders for a new residential mortgage see her current BTL mortgage payments as a major outgoing? The way I see it, if she does things in this order, there would be a gap where she could potentially have to cover both payments (if she can't find new tenants immediately, say) and surely that would not be appealing to a lender?

I have said to her that I think her best option, if she wants to keep the BTL, is to move back in with her parents temporarily, find new tenants to cover the BTL mortgage payments, and then apply for a resi mortgage, at which point a new lender could clearly see that the BTL financial commitment is being covered. Then as you say, it would just be a case of basing a new mortgage on her regular work income.

She's not keen on this plan though, and I may well have got it all wrong anyway.