Renting to buy with partner - complex situation

tomcarlton

Hello all,

This is yet another case of wanting to buy together with my partner when we both already have mortgages on our current properties. I had a quick look through the forum but found nothing to fit our case, even though I saw some similar ones. Hopefully somebody can comment on how much we could realistically be able to borrow.

I am on 50k plus 8k yearly bonus (consistent) and my partner is on 30k. I have a leasehold on a flat which may be worth circa £260k (bought it a couple of years ago for £222k) with a £152k mortgage attached to it. My partner has a full equity freehold property valued circa £370k and another freehold valued at £240k with a £165k mortgage attached to it. The latter is rented yielding £200 over mortgage repayments.

We want to assess the possibility of buying a property together without selling any of our current properties. The way we see it, my partner’s properties are her only means of pension, so we wouldn’t want to sell. I would also like to keep my flat for a few more years but I keep my mind open on the subject. In any case, my mortgage is less than 75% loan to value and I should comfortably get a rent which surpass 125% my mortgage payments to get a buy to let mortgage.

In order to buy together, we have at least 40K and my partner is thinking about borrowing against the full equity property to increase the deposit for a property of up to £400k. Does this sound feasible at all, to get a 90-85% mortgage? What about getting the loan/mortgage on the full equity property?

Any comments welcome. Many thanks!!!

Thrugelmir

tomcarlton wrote: »

The latter is rented yielding £200 over mortgage repayments.

That sounds pretty marginal profit wise. Given that only interest is tax deductible and provision will have to be made for maintenance and upkeep. The after tax return is very marginal.

Even more so once interest rates start to rise.

There's a lot to chew on there. Investing in property is a way of providing a pension. However shouldn't cloud the issue. As a £360k residential mortgage is over 4 times your salary. Nor would I want to be exposed to over £650k of debt. That's a sizable punt.

densol_2

Ooooh if it was me - I'd sell the lot - gather up the equity - add on a small mortgage and live in a lovely big house ( and get a private pension )

getmore4less

Do proper yield calculation on the three let properties to see if they work as standalone business.

Then look at how much you can release to fund the £400k place


what's left is mortgage.

tomcarlton

Thank you all for your comments. It really seems the rational thing to do is to sell the lot but there are other family implications around.

As yes, it is also important to bear in mind the eventual interest rate rise.

Yet I was more interest to know about the way lenders calculate what is maximum they give on mortgages, ie do they consider mortgages on other properties even if when proving these are rented and covering their repayments?

Thrugelmir

tomcarlton wrote: »

Yet I was more interest to know about the way lenders calculate what is maximum they give on mortgages, ie do they consider mortgages on other properties even if when proving these are rented and covering their repayments?

Rental income is normally considered if the property is unencumbered, i.e. mortgage free. Otherwise the lack of rental income makes a double edge sword. With no income there's the mortgage to pay along with the standing charges for the property.

Hence my leveraging comment. A 3% rise in interest rates equates to a £20k per annum rise in outgoings. So while in a bull market everything looks rosy , correspondingly bear markets can be aggressively savage.

Typhoon2000

Unless you are on a Base rate tracker, don't assume a 3 % rise in Base rates will equate to a 3% raise in your mortgage rate. You also have the option to fix your rates for piece of mind. Also if your property is a pension, don't treat it in the same way as a business when doing sums to to see if it is worthwhile. Compare it to a private pension and consider the annual charges a pension carries. As you already own property there will be selling fees and possibly CGT implications if you sell. If you pay off your mortgages and use the income as a pension ( which you can potentially receive many years before retirement) there is only income tax to consider on the profit after expenses.
The hard bit these days is buying property with a mortgage (it is possible that you will find that banks would not be willing to lend enough for you to buy the property you current own if buying now). So think carefully about selling what you have if you can't replace with similar or better straight away.

tomcarlton

Thanks all for your comments.

As Thrugelmir said, there is a lot to chew and rates can only go up, so points taken.