Impact of buy to let

DocMcStuffins

I've been lurking for a couple of months since we started this process but am now registering in the hope of getting some advice.
Have agreed on house of our dreams, applied through broker to Leeds BS for mortgage of £130k and have deposit of 50k. Partner and I have combined income of 52k, no debts, excellent credit and only outgoing is childcare of £170p/m.
Partner has a BTL property, bought 10yrs ago to live in but then he was posted overseas so decided to keep it as an investment. There have only been two tenants and no gaps, the current tenant has been there 7yrs now, with no plans to leave. We overpaid considerably on this a few years back and brought the term down, remortgaged recently and the term is now only 6yrs. Hurrah! Or so I thought.
Leeds BS just came back to request the tenancy agreement, which I've emailed to broker. But I decided to have a nosy on their site and read that BTL mortgages will be counted in outgoings unless rent is 125% of mortgage. Ours isn't, mortgage and rent are equivalent (£500pm), and we've never counted this money in partners earnings. We can't remortgage again so soon, otherwise we would extend the term and bring repayments down.
I then put all the sums back in the borrowing calculator with an extra £500 in our outgoings and the figure coming out was over 10k less than we need
Can anyone reassure me? We thought we'd done the right thing, trying to clear the mortgage on that property. Are Leeds likely to treat this the same as an outgoing of £500 on, for example, CC debt? Can they use their discretion or will it simply be a case of 'computer says no'?' I'm really worried about this, we've had lots of to-ing and fro-ing with Leeds already and our buyers, although very nice and not making threats, are querying the delay via the estate agents. I really don't want to have to re-apply to another lender, with all the delays that will involve.

tunnel

Is the mortgage payment of £500 a repayment or interest only as the 125% is normally taken on the interest part only.

DocMcStuffins

It's a repayment, Tunnel. The main reason for overpaying and reducing term was so it could act as an income ASAP, as partner knew that coming home from overseas would mean taking a lower paid job locally.
Mortgage is now £37k over 6yrs so interest will be reasonably low, meaning rent will be much more than £125. So if Leeds take that approach, we should be fine. Phew, I can try to relax a bit.
Thanks so much for your help. I'll head off for a browse now and see if I can contribute to any threads, rather than just benefiting.

tunnel

As your on repayment and the rents £500 that would mean interest of £400 a month, quite obvious its nowhere near to that figure so you should be ok although I'm no expert, hopefully someone else will be along to clarify it.

kingstreet

At 5%pa, the interest element of a £37,000 mortgage is only £154. The lender's rental income requirement would therefore be 125% of that, or £193 per month.

[Deleted User]

DocMcStuffins wrote: »

I've been lurking for a couple of months since we started this process but am now registering in the hope of getting some advice.
Have agreed on house of our dreams, applied through broker to Leeds BS for mortgage of £130k and have deposit of 50k. Partner and I have combined income of 52k, no debts, excellent credit and only outgoing is childcare of £170p/m.
Partner has a BTL property, bought 10yrs ago to live in but then he was posted overseas so decided to keep it as an investment. There have only been two tenants and no gaps, the current tenant has been there 7yrs now, with no plans to leave. We overpaid considerably on this a few years back and brought the term down, remortgaged recently and the term is now only 6yrs. Hurrah! Or so I thought.
Leeds BS just came back to request the tenancy agreement, which I've emailed to broker. But I decided to have a nosy on their site and read that BTL mortgages will be counted in outgoings unless rent is 125% of mortgage. Ours isn't, mortgage and rent are equivalent (£500pm), and we've never counted this money in partners earnings. We can't remortgage again so soon, otherwise we would extend the term and bring repayments down.
I then put all the sums back in the borrowing calculator with an extra £500 in our outgoings and the figure coming out was over 10k less than we need
Can anyone reassure me? We thought we'd done the right thing, trying to clear the mortgage on that property. Are Leeds likely to treat this the same as an outgoing of £500 on, for example, CC debt? Can they use their discretion or will it simply be a case of 'computer says no'?' I'm really worried about this, we've had lots of to-ing and fro-ing with Leeds already and our buyers, although very nice and not making threats, are querying the delay via the estate agents. I really don't want to have to re-apply to another lender, with all the delays that will involve.

DocMcStuffins wrote: »

It's a repayment, Tunnel. The main reason for overpaying and reducing term was so it could act as an income ASAP, as partner knew that coming home from overseas would mean taking a lower paid job locally.
Mortgage is now £37k over 6yrs so interest will be reasonably low, meaning rent will be much more than £125. So if Leeds take that approach, we should be fine. Phew, I can try to relax a bit.
Thanks so much for your help. I'll head off for a browse now and see if I can contribute to any threads, rather than just benefiting.

Sorry, I'm not quite following this.

As I understand you, your partner has a BTL property, which he has had for 10 years. For some reason, there is only 6 years left on the mortgage, but anyway even after 10 years of ownership the rent still only matches the mortgage payment.

That's not an investment; that's been a liability.

Edit: Just re-read, and the reason for the reduced mortgage period is because of overpayment. Are you still overpaying?

What''s £125? Is that the monthly payment on the £37k mortgage now?
If so, is £500 p.c.m rental income you originally talked of not > 125% of the mortgage payment?

DocMcStuffins

Thanks Kingstreet, that's reassuring.

Dark field, sorry £125 was a typo. Should've written 125%. We aren't still overpaying no, we've been saving deposit for this house. The monthly rent is equivalent to the monthly mortgage repayment but as others have explained, it's >125% of the interest on the capital, which is fortunate for us.