First time buying; second house - advice appreciated

devlinux

Hi there! I thought this would be a good place to ask for advice - the folks here at MSE always seem to have a way of clearing tricky situations up. I'll try to explain my situation as best I can. I'll also provide a summary at the end, so if you're pushed for time give the tl;dr a look - all suggestions are welcome.

I have just finished my undergradate degree and am beginning a PhD program in October. It is a 4-year paid course and I will be earning ~£14,000 per year. I am awaiting confirmation of the specifics of the funding but it should be tax free, giving me a little more to play with.

I am in the very fortunate position of owning property. I own a house that is currently rented to private tenants. By my estimates, the house is valued at approximately £100,000. The house is not mortgaged.

I would like to consider buying property in my area if it will work out cheaper than renting. Given that I am currently in Aberdeen, and most of the properties I would like to buy are relatively close to the university, this is very likely. Aberdeen is rather expensive in terms of property. Given that I am here for the next four years at least, I feel that the savings to be made in buying now rather than renting are too large to ignore. I do not have any immediate savings sufficient to meet a standard cash deposit on a new house.

I am unsure of my options with regard to owning property outright and acquisition of a mortgage to buy somewhere new. I skimmed both the mortgage and re-mortgage guides on the site here, and found neither of them to be tailored with respect to my current situation. My current understanding is that I would need take out a loan against my current asset, in order to pay the deposit of a new mortgage to a sufficient level that would give me the best possible interest rate(s) overall. Given that this would involve two separate loans, I would suspect some sort of brokered arrangement between two parties exists to amalgamate these loans into one single, simpler contract.

tl;dr

• £100,000+ in property assets, unmortgaged
• Negligble liquid assets (at present)
• Income fixed for four years, as well as extra income from property
• Looking to buy; unsure of options or best approach

Any and all advice is much appreciated. I'm planning on doing the rounds with the various banks and lenders this week and asking for their insight on the situation. Thanks!

kingstreet

You might get a lender to remortgage your BTL upto 75%, or the amount calculated using the monthly rent, whichever is the lower of the two, but the chances of your income being accepted by a lender for a residential mortgage are pretty slim.

For example, if it's really worth £100k to a chartered surveyor, to justify £75k, you would need to be receiving rent of £470 per month or more and need a lender prepared to lend without a personal income.

If you have any chance, you need a broker.

devlinux

Thanks, I had gathered a mortgage broker would be necessary for such a deal if only to simplify the situation. The monthly rent is above the value you stated. I'll give the remortgage guide a proper read.

Am I correct in thinking that the idea is to have the BTL 'paying off' the remortgage while simultaneously providing me the maximum possible liquid assets to secure the best possible mortgage deal on a new property?

kingstreet

As only interest on the mortgage is allowable as an expense against the rental income for tax purposes, I'm not sure the general view is;-

the idea is to have the BTL 'paying off' the remortgage while simultaneously providing me the maximum possible liquid assets

but it depends on your priorities.

As I said, the issue is getting a lender to accept your stipend. The BTL is the easier of the two "problems".

Thrugelmir

devlinux wrote: »

Am I correct in thinking that the idea is to have the BTL 'paying off' the remortgage while simultaneously providing me the maximum possible liquid assets to secure the best possible mortgage deal on a new property?

Not that simple. Any profit from letting the property may be subject to income tax. Capital is repaid from after tax income. So may not be the route you wish to follow.

devlinux

Kingstreet, I had hoped that having the asset would offset my low income enough to allow me some options at this stage. Perhaps I was a little overzealous.

Ok, I'll make sure to factor income tax into the equation. Thanks, Thrugelmir.

kingstreet

devlinux wrote: »

Kingstreet, I had hoped that having the asset would offset my low income enough to allow me some options at this stage. Perhaps I was a little overzealous

The asset is useful in providing a potential deposit.

Affordability and acceptance of income is a totally separate issue.

I don't know of a lender willing to accept the income from a PhD. See if anyone else has any ideas in the next few days.

devlinux

Thanks for the advice, it's good to have an idea of where I stand.