BTL mortgage to raise deposit for a second home

123123

Hi,
My partner and I want to buy a house together but don't have enough savings for a deposit.

I own a house with no mortgage left outstanding, valued at £300,000. A simple solution is to sell this and move somewhere else, but I've worked so hard renovating it that I can't bear to part with it!

So I'd like some advice about applying for a BTL mortgage in my name on my current house. We will use the money raised as the deposit for our new home. We will then rent out the old house and live in the new one. Is this acceptable to mortgage providers? Rental rate of existing house is approx £1200 per month and I'm aware this must cover the cost of 125% of repayments under stressed rate at 6/7%. I have previous experience as a landlord so understand and accept the risks involved in letting property, e.g voids, damage.

Could we then also apply for a joint residential mortgage based on our combined salaries? We both earn around £35,000 each, although around half of my partner's wage is commission. We both have sound credit history with no debt. The price of the place we like is £400,000.

All your good advice will be appreciated.
Thanks.

Thrugelmir

123123 wrote: »

The price of the place we like is £400,000.

How much of your own money will you be putting down as a deposit.

As you'll struggle to raise £400k of borrowed money.

123123

It will be around £40,000. Using banks' online calculators has showed that our salaries alone aren't enough to get what we'd like as a simple residential mortgage. Could rental income be used as a third income to supplement this since we have lots of equity in existing house?

tvfreek

75% of £300k plus £40k deposit plus incomes stated should be Ok for £400k purchase.

Unless I've read your post wrong.

Thrugelmir

123123 wrote: »

Could rental income be used as a third income to supplement this since we have lots of equity in existing house?

And when there's no rental income stream? You'll be left with another mortgage and costs to service.

Property will need to be unencumbered.

123123

Thanks for the reply. The current house is in quite a good location with very low void periods, although I appreciate areas can change in popularity over the years.

Can you suggest another solution to gain liquidity?

It seems a shame that I've worked so hard to pay off my mortgage early but this has no advantage to us. In effect we are just like first time buyers trying to raise a deposit, despite owning a house that is 75% of what we'd like. Our options seem to be either just stay put and save up again, or sell.

Cornucopia

You would need a broker to get access to some lenders' BTL loans, so I would approach one now to get an idea of how the figures work.

As a rough estimate, I would suggest that both mortgages would be around £200k.

The rent should adequately cover the BTL payments, and the LTV is 66%, so you may get a better rate than if you take the whole 75%.

lonestarfan

You mention you've worked so hard renovating it. I would say you do need to think long and hard about how you'd feel with tenants in it. They won't love it like you do or look after it like you would and it's amazing how soon everything deteriorates when you're not there everyday living in it and dealing with things as you go along. I had fantastic tenants and I've been a tenant myself but even then properties suffer from wear and tear through no fault of the tenants. It definitely won't stay in the same condition.

Thrugelmir

123123 wrote: »

It seems a shame that I've worked so hard to pay off my mortgage early but this has no advantage to us. In effect we are just like first time buyers trying to raise a deposit, despite owning a house that is 75% of what we'd like. Our options seem to be either just stay put and save up again, or sell.

You've no mortgage and have benefited from an era of cheap credit which has been a boom to house prices. Personally I see no advantage in leveraging with debt. At a time when the signals are negative. With no mortgage you are in a position to build capital savings. A good place to be at the current time.

GMS

This could be possible on a Let to Buy.

Speak to a broker as many lenders are broker only.

How much rent would you expect your current property to generate per month?

kingstreet

On existing property the lower of 75% or rent-based formula will give you around £190,000.

Reduce slightly to £180,000 to 60% to get the lowest BTL/LTB rates.

Of that, you'll need about £15k to cover the remortgage fees and the costs of the purchase, leaving you £165k for the purchase.

If you buy for £400k, the £165k deposit means a mortgage of £235k, or 59%, again ensuring the best LTV for residential rates.

Joint incomes of £52k, excluding the commission for now, will see you able to borrow £236k, assuming a 25 year term, no dependents/childcare, maintenance or credit costs etc. The let property and mortgage will be ignored as it will be self-financing.

The maths works. Just ensure you are ready to be a landlord again and consider paying both mortgages with no rent coming in.