Can this be done? (Remortgaging and BTLing palava)

Bossypants

Hi everyone! This is a plan I and others have been thinking about for some time, but before taking the final steps to put it into action, I'd be grateful if any of you wise heads would have time to take a look over it and point out any flaws we may have overlooked.


Situation:


I (single person) own a house valued by a local estate agent at £230,000, £1,000/month rental value, with an outstanding mortgage of £98,000.


For work and personal reasons, I want to move to buy a flat in a different town and let out the house. I have an £80,000 deposit, and because the town I want to move to has a ridiculously competitive property market, my parents have very kindly offered to make me an unsecured interest-free loan of the remainder, on the understanding that it be repaid in 2016 through the remortgaging of both properties (the new place as my residence, and the house as a BTL investment).


I have now found a place I want to buy, and had an offer of £243,000 accepted. That means my parents will have to lend me £163,000. Based on my current salary and the house at £230,000, my current lender (with whom I would likely stay) would be prepared to lend me £145,000, which I think should carry over to the new place, based on the similar value (I have asked the surveyor to consider whether the new place would be mortgageable even though I am not getting one for the purchase)? I would then hope to raise the rest by putting in a lesser deposit in the new BTL mortgage on the house.


What have I missed?

Thrugelmir

First observation. Lenders may be, let's say uncomfortable with a gift of £163k from your parents.

Bossypants

Thanks for the reply, but apologies, not following, why would they be aware of it?


Edited to clarify my confusion: All the money laundering / provenance of funds stuff is being done at the initial purchase stage. By the time we get to the mortgaging stage, the place will be 100% paid off and owned by me. Would the lender really want to see the provenance of the funds used for the initial purchase, and if so wouldn't the same AML documents be sufficient?

Sparx

Because your mortgage co and solicitor would need to know the source of your deposit...

Saver-upper

Hi Bossypants,
This part of the forum is not one I normally stray to,because I don't know alot about buying property,but from reading threads on here I believe that if part of the deposit is a gift from someone else,that needs to be declared,and a letter written by ,eg,your parents,specifying it is a gift.
Just my understanding,and others with more knowledge will be along,I know.

Edited to say:have just seen your additional info in post 3.Now I really don't know the answer,sorry

Bossypants

But my deposit would be my own £80,000?


Edited for Saver-upper: Sure, the money is fully declared, letters have been filed, signed off, etc. This is all being done for the initial cash purchase.

Bossypants

It's probably me being stupid, but we are all on the same page that the initial purchase is a cash purchase, right? As in, money in the bank, no lender?


Tenants will not move in until the appropriate mortgage has been granted.

Pixie5740

Bossypants wrote: »

It's probably me being stupid, but we are all on the same page that the initial purchase is a cash purchase, right? As in, money in the bank, no lender?


Tenants will not move in until the appropriate mortgage has been granted.

Not that you've told us the new property will be a cash purchase it makes sense, it wasn't clear from your OP.

If you want to let your current home out you could just apply for a Let to Buy mortgage to release some equity (up to 75% LTV) unless you're locked in a fixed term and are trying to avoid ERC, then you could just apply for CTL for now (and hope it is granted).

See also NEW LANDLORDS.

G_M

* New landlords: advice, information & links


From:
Tenancies in Eng/Wales: Guides for landlords and tenants

dimbo61

Do not forget you will be unable to remortgage for 6 months after you buy the property!

jennifernil

Pixie5740 wrote: »

If you want to let your current home out you could just apply for a Let to Buy mortgage to release some equity (up to 75% LTV) unless you're locked in a fixed term and are trying to avoid ERC, then you could just apply for CTL for now (and hope it is granted).

This is what I would do, go for the biggest BTL mortgage you can get, then most the cash left over after repaying the current mortgage can go towards repaying your parents. Remember to set aside a contingency fund for void periods and repairs.

Then in 2016 you can raise a mortgage on the house you are living in to repay the remainder of the money your parents provided.

However, when working out the best way to do things, you need to also consider the various interest rates and fees. A residential mortgage could well have a lower interest rate.

Do your parents need the full amount back that soon? If not, they could become your BTL mortgage lender, probably getting a better rate of return on their money than having it in a savings account. The interest you pay them would be taxable income for them.