Interest only or extended repayment term

Sarb87

My partner and I both run businesses, and I would like to move to a larger house as at the moment my house is too small for my business to grow at the same rate it has been.

I have two options, one is to rent my house out and either rent or mortgage a larger house. The other option is to sell the house and hope I sell it for as good a price as possible. Because the housing market looks to be on the up again, I feel it may be best to rent the house out at the moment. To do this I would need to get my current mortgage costs down, by either going on to an interest only mortgage or extending the repayment term.

I spoke to my bank earlier today to enquire about changing my mortgage to interest only. I was told that I would need to have a current investment or savings, or a second home with around 50K equity. I didn't think to mention to them at the time, but my partner owns a limited company that is just over a year old and has a gross turnover of £350,000 and growing and has plenty of potential. He owns 33.3% of this business. He only takes a basic wage just now because the company is growing and they are throwing the money back in to the company to allow it to grow faster. Would my partner having this business, help with getting our mortgage put on to interest only? Would his business count as a current investment?

If all fails is it fairly straight forward to extend the repayment term? And are there limits to how many years I can add on to the mortgage term?

Just to let you know, I am not tied in to my current mortgage, we are just on a variable rate. So we should be free to go to different lenders if that's best.

Thanks in advance for any advice.

hcb42

Why keep it if you need to go on an interest only mortgage?

You are only renting it off the bank then, to rent to someone else - would it not be better to sell if you are not in negative equity?

Sarb87

Thanks for your reply. The reason we are thinking of keeping it as we have seen a few things saying that houses are going up in value at the moment. If we sell and rent a larger house for 6 months, we would lose the increase in price the house may have gained in this time. We wouldn't be keeping the current house long term.

kingstreet

Your partner's business is not a suitable savings vehicle, no.

You may find it easier to remortgage onto a formal let to buy mortgage product, using extra funds to increase the deposit for your new home, reducing the mortgage you need on that and helping you get a better rate.

Interest-only is still normal around LTB/BTL business and you should have no problem getting a mortgage of the lower of;-

75% of the value of the property
or
the mortgage amount where 125% of the monthly mortgage interest at say, 6% is covered by the monthly rent.

hcb42

I might be wrong and you might be lucky, but renting for six months for what might be a small increase in the house price seems a risky strategy - you could get tenants from hell moving in...

Sarb87

kingstreet wrote: »

Your partner's business is not a suitable savings vehicle, no.

You may find it easier to remortgage onto a formal let to buy mortgage product, using extra funds to increase the deposit for your new home, reducing the mortgage you need on that and helping you get a better rate.

Interest-only is still normal around LTB/BTL business and you should have no problem getting a mortgage of the lower of;-

75% of the value of the property
or
the mortgage amount where 125% of the monthly mortgage interest at say, 6% is covered by the monthly rent.

Thanks for your detailed reply. About remortgaging on a buy to let mortgage product, because we bought the house in 2007, there is practically no equity in the house. Even if we got the mortgage price down, there wouldn't be much extra funds. The rent would just cover the mortgage. I kind of feel like I'm stuck with this house at the moment, unfortunately with a business which is struggling to grow due to the size of the house.

Sarb87

hcb42 wrote: »

I might be wrong and you might be lucky, but renting for six months for what might be a small increase in the house price seems a risky strategy - you could get tenants from hell moving in...

I understand your concern with the tenants, but we actually have a close friend who is interested in renting our house.

Thrugelmir

Sarb87 wrote: »

Thanks for your reply. The reason we are thinking of keeping it as we have seen a few things saying that houses are going up in value at the moment. If we sell and rent a larger house for 6 months, we would lose the increase in price the house may have gained in this time. We wouldn't be keeping the current house long term.

And when you come to sell the property? Tenants have rights. So when it's empty and costing you money. There's your "profit" dripping away. That's if you've made one of course.

kingstreet

I just found your other thread. It sounds like buying another place is going to be pretty difficult too.

With income and equity issues, your options are limited.

Sarb87

Thrugelmir wrote: »

And when you come to sell the property? Tenants have rights. So when it's empty and costing you money. There's your "profit" dripping away. That's if you've made one of course.

Our close friend would be our tenant, and we would allow him to of course stay here for as long as he likes. If decided to move we would sell it.

Sarb87

kingstreet wrote: »

I just found your other thread. It sounds like buying another place is going to be pretty difficult too.

With income and equity issues, your options are limited.

Thanks for the advice, really unfortunate that I can't do much about my mortgage situation at the moment. I'm really surprised that my partners business doesn't count as an investment, since he has the 33.3% share in the business.