Impact of BTL mortgage on my residential mortgage?

dogspot

I was wondering if anyone could help withthis query?

I’m thinking of remortgaging my home in order torelease some of the equity to part finance the deposit for a buy to letproperty. The issue I have is that I may wish to sell my home and move toa new property in the next few years. My current mortgage provider hasinformed me that I can remortgage with them to release equity for a buy tolet. But if I look to move to a new residential property and ‘port’ mycurrent residential mortgage across with me they’ll reassess the‘affordability’ of the residential mortgage by taking into account the full buyto let mortgage amount.

So for example if I have a buy to letmortgage for £100k, they’d subtract this full amount from the total amountthey’d be able to lend me on my residential mortgage based on salarymultiple/affordability. They’d not be prepared to factor in any sittingtenant or history of rental returns for the buy to let. Their reasoningis that I would be fully liable for the buy to let mortgage payments if therewas ever a void/no payment (which is of course true).

However, this lending criteria wouldrealistically prevent me from being able to port my residential mortgage to anew residential property at the appropriate time, unless I sold the buy to letproperty. This would of course negate the purpose of doing the buy to letin the first place! The question I haveis whether my mortgage providers stance is normal? Do other providerstake such an approach when assessing affordability on residential mortgages orcan they be more flexible? Do they view a buy to let mortgage in the sameway or will they discount it / ignore it for salary multiple/affordabilitypurposes for your residential mortgage if you can show you have a tenancyagreement in place?

Would like to do a buy to let but don’t want to unduly restrict my own livingoptions down the tracks. Many thanks for any views!

holly_hobby

They have rather confused you, you port (on a house move) your mortgage product (fixed, discount, etc) not the underlying mortgage borrowings.

And as the mge borrowings would be on a different property, it is formerly classed as new borrowings, and therefore subject to full underwriting/status assessment.

So, what they are actually saying is that any new mge with them, will be subject to full affordability assessment (even if the actual borrowing remains the same or has even reduced), which includes any BTL commitment (this isn't HSBC is it ?)

Don't panic, as long as you don't mind moving lender and product, there are plenty whom, as long as the BTL is self sufficient, on an AST etc (some wanting prev history), will set this commitment aside from the affordability assessment on your new residential arangement.

When the times right, engage a mge broker whom will be aware of which mge lenders operate on a set aside basis.

Hope this helps

Holly

PS - as a side note, along with any BTL mge interest, you will also be able to offset the mge interest associated with the BTL funding (equity release )element of your primary mge (as its classed as capital injection by HMRC), just ensure you have a clear audit trail between the 2, in case inspection is reqd.

dunstonh

Would like to do a buy to let but don’t want to unduly restrict my own livingoptions down the tracks.

Then dont get a buy to let mortgage. Or at least make sure you have a signficant deposit and the rental income is well in excess of the cost of borrowing.

Your new mortgage is a liability and expense. Just as any loan would be. Any new mortgage for yourself in future would take this liability and expense into account. It may have virtually no impact if the rental yield is good and income would cover the mortgage with room to spare at a more normal rate (note normal - not current). However, if the rental income falls short of covering a more normal rate then it will impact on your affordability towards a new mortgage and restrict the amount you can borrow.

Do other providerstake such an approach when assessing affordability on residential mortgages orcan they be more flexible?

ALL lenders should be taking affordability into account.

Do they view a buy to let mortgage in the sameway or will they discount it / ignore it for salary multiple/affordabilitypurposes for your residential mortgage if you can show you have a tenancyagreement in place?

It is never disregarded. It is the impact of the buy to let mortgage and associated costs along with the rental income that matters. The figures may result in no impact. However, they may result in a minor or major impact on what you can borrow.

RupertTheCat

My partner has several buy to let mortgages. When we looked at moving our residential mortgage we were unable to, as the buy to let mortgages were taken into account and we were considered a bad risk due to the number of them and the affordability factor.

I have a number of friends who have encountered the same problem, so it is something you need to take into consideration.

holly_hobby

Yes, lenders will of course have limits on over exposure, and applicants with BTL portfolios (ie several mortgaged BTL properties, as oppossed to 1 unit) are naturally treated as more of a default risk, due to perceived over exposure in one asset type.

The OP with 1 property, will be included in some lenders assessments , whilst others (if the unit is self sufficient, with at least 6 mths AST history), will set aside when dealing with a primary res enq.

OP for several obv reaons needs an experienced mge broker - whom will make short work of this (as long as LTV and rent/mge ratio meets criteria).

Hope this helps

Holly

dogspot

Guys

Thanks so much for your very prompt and helpful posts. Really useful. It's given me a good steer and I'll now get in touch with a mortgage broker as it's clearly feasible (although I need to proceed with caution).

Holly, your point about offseting the mortgage interest associated with the BTL funding is something I would never have thought of and would probably never have stumbled on. So a big thanks from me.

holly_hobby

Hi Dogs,

No probs, if you employ an accountant to do your returns, he should have also mentioned it.

If you intend to submit your own SA return, broadly all costs directly associated with operating the business (ie your let property) are a permitted deduction.

Either as an income tax deduction (off rental income) for such things as mge interest*, essential repairs/replacement, prof cleaning (ie on tenant changeover), landlords insurance, advertising, letting management and professional fees, associated costs in securing a BTL mge, annual safety checks, direct travel to and from the unit (under business management), etc (list not exhaustive).

Or a Capital Gains Tax deduction on disposal (sale) of the unit , for such things (in addition to HMRC qualifying reliefs/allowances) as improvement/upgrading costs (not general repair, this comes under IT), acquistion/disposal costs (inc any associated prof fees), carry fwd of prev reported CGT losses, list not exhaustive.

* where there has been equity released from the property itself, the permitted deduction of associated mortgage interest (classed as capital withdrawal) is capped at the purchase price or the value of the property when it entered the business (ie became availalble/marketed for let). Any interest in relation to any mge exceeding this pivotal sum, is allowed from a lenders point of view, but is not a permitted deduction under HMRC regs ....

Hope this helps

H x