Mortgage for 2nd property

georgestarlee

Hello there. I have a query regarding my mortgage.

I and my wife jointly bought a house in London in July 2012 £260K 10% deposit current value around £280K. In Sept 2013 we had to move to Portsmouth because of my wife started university. We then took consent to let from HSBC bank (mortgage provider) and rented the property to a friend on 1 year tenancy to be extended next year. HSBC normally provides 1 year consent then they said we have to apply for extension. The rental income covers the mortgage.

Currently we are renting 1 bed flat in Portsmouth. We are thinking of buying a flat in Portsmouth. It costs around £90K to £125K for 1 to 2 bedrooms flat. Can we buy a flat in Portsmouth to be our main residence as we will be staying in Portsmouth for next 3 years? Will bank provide mortgage with 10% deposit or what would be the minimum deposit requirement?

Will HSBC bank have any objection or will the London property mortgage need to be converted to Buy to let before we can get mortgage for new property? HSBC mortgage is fixed for 2 yrs until July 2014 then reverts to HSBC variable rate.

As my wife is currently a student will we be able to buy flat in Portsmouth jointly? Or will it just be on my name? Currently I am still working in London (40K PA salary) but looking to change job to Portsmouth/Southampton area.

Any advice on the above will be appreciated. Thank you.

holly_hobby

Yes, you can purchase a 2nd property - subject to status and other lender requirements.

I assume you have records of rent recd, have a tenancy agreement (AST) and are reporting your (net of dedutions) rental income to HMRC for income tax purposes.

Just out of interest, how are you reporting your net rent receipts for tax purposes ? Is it on a 50/50 split ?

If you have the lenders consent, and the rental property is self sufficient (proof of an Assured Shorthold Tenancy agreement and management may be reqd) - then there are several lenders that will disregard this mge commitment from their affordability assessment for your new flat - but not all will do this (HSBC being one of them), so you will need a broker to assist.

Assuming, you utilise a lender that does disregard, that leaves your reqd income being sufficient to cover your 2nd mge.

If you have no other financial commitments (loans etc), then a 40k salary for a 125k pch, should find you a few lenders willing to consider.

Partner can go on the mge and deeds, even though she has no income, as its your income covering the mge, she just goes down as 2nd applicant (must meet the lenders status requirements ie no poor credit), with her occupation noted as student, and you as 1st or primary applicant.

With respect to a deposit for your new flat, some lenders will require at least 15% for a 2nd property irrespective, whilst others can be more flexible - so if you can increase your pot you'll open up more options.

Hope this helps get the ball rolling .....

Holly xx

georgestarlee

Hi Holly, many thanks for your advice which is very helpful.

We just started renting the London property end of Sept 2013. Yes I do have AST tenancy agreement and as I have rented to my friends I did not give it to management agent. Is this a problem?

Yes you are right, the rental income will be on 50/50 split between me and my wife and will do the tax return next year with HMRC.

I think HSBC has strict terms than other lenders. Will HSBC change my existing mortgage terms (fixed until July 13 then revert to HSBC variable rate)? Will HSBC consider to change to Buy to Let which might be more expensive and not sure whether I will qualify?

As you suggested, is it better to get mortgage broker/agent assistance? Do I first check with HSBC and discuss these?

I have no other financial commitment currently. I am planning to buy next year only as I am renting and I will be able to move out mid May 2014 only (due to AST rental agreement).

Any advise as to which lenders are more flexible?

holly_hobby

georgestarlee wrote: »

We just started renting the London property end of Sept 2013. Yes I do have AST tenancy agreement and as I have rented to my friends I did not give it to management agent. Is this a problem?

Not necessarily, but some lenders do ask for this for inexperienced landlords where there is let unit in the background.

georgestarlee wrote: »

Yes you are right, the rental income will be on 50/50 split between me and my wife and will do the tax return next year with HMRC.

Depending upon what the net rental profit (yield) is, coupled with the fact your wife has minimal income or no inc at all as a student, and your own tax position, you may want to consider changing the deeds to tenants in common, weighting ownership in her favour.

This permits you to split the legal and beneficial ownership 99/1 (or whatever) in favour of wife, which allows you to complete and submit HMRC form 17 (attached below), declaring both the legal split and the corresponding division of rental income(which must mirror this). For example if your property has net rent for tax of £100 - £99 would be reported and taxable under your wife's submission, and £1 under yours -which is how you can mitigate tax.

Of course you'll continue to review this along with financial changes to your circs - and you may want to engage your own tax practitioner to assist until you get the hang of things.

georgestarlee wrote: »

I think HSBC has strict terms than other lenders. Will HSBC change my existing mortgage terms (fixed until July 13 then revert to HSBC variable rate)? Will HSBC consider to change to Buy to Let which might be more expensive and not sure whether I will qualify?

Consent to let is designed for accidental landlords, and there will be a tipping point (usually 3 yrs) when the lender will look to switch you to BTL rates or load SVR by circa 1.5% - at which point you may wish to source an alernative provider.

If that is the case you'll then be looking (as an experienced/existing landlord and based on current products) at a max LTV of 80% - so you may want to consider (if the property hasn't increased in value), how you will manage that issue when the time comes (if you don't wish to sell).

georgestarlee wrote: »

As you suggested, is it better to get mortgage broker/agent assistance? Do I first check with HSBC and discuss these?

Yes source a mge broker, and no HSBC don't need to be advised of any 2nd mge application.

georgestarlee wrote: »

Any advise as to which lenders are more flexible?

Wholly dependant upon your status and other issues at the time of application, which can't be discussed here, accordingly your broker will be able to assess and guide accordingly.

Hope this helps with the basics ...

Holly xx

Attachment - HMRC Form 17 - http://www.hmrc.gov.uk/forms/form17.pdf