I fear this won't be simple...

Silks

My partner and I own our London home (worth £900k) outright, we have £150k in cash plus £45k to come as and when we can sell my late parents’ home. We’re both employed (joint earnings of £125k per annum) but plan to take early retirement in 3 - 5 years (we’re 57 and 53), sell the London house and move to the country.

Annoyingly, our dream house has just come on the market at £775k and we feel we want to try and buy now (and possibly let it out until we’re ready to move) but to do so we’d need a fairly huge mortgage – £600k. So, my questions are:

What chance do we have getting a £600k mortgage at our age and with our salary level? Does the fact that we have full equity in the London house have any bearing?

We have built up an ISA pot of around £100k. Is it better to cash this in and get a lower mortgage or hang on, given we’ll be able to pay off the mortgage in full in a few years?

Might interest-only be better (or even possible)?

Finally, I have a pension pot of around £250k which I can now access under the new rules. Could this be a bargaining tool in the mortgage negotiations? Could I even use it as a SIPP to buy the new house (as a buy-to-let arrangement)?

Sorry for the long post but I really would appreciate some pointers or suggestions before we book to see an IFA/mortgage advisor...

amnblog

If the new place with rent for something north of £3,500 you are in the ball park.


There are a number of ways you can do this.

Silks

Looking at Right Move, similar properties are on the market for £1.5-£2k per month. This would pay most of the interest and our salaries would cover the rest (and the repayment element if we went down that route). Why do you reckon we need £3.5k plus?

Senior_Paper_Monitor

Typically, a lender requires the rent to cover an assumed Interest Only rate (usually c 6%) with a coverage of 120%-130%.


As amnblog indicates, this looks do-able one way or another.

amnblog

The easiest option is to secure lending on the new property based on the rental income.


£2,000 of rent is only going to get you about £380,000 of lending.


£3,500 gets you nearly £600,000 and a swift, clean solution.

Cornucopia

The market rent is the market rent, there is no point in speculating about it being £3500, if £2000 is nearer the mark.

I'm sure it's doable, though, although it might be more practical to look at raising the funds as a residential mortgage on your first property, rather than BTL on the second.

If you have your hands on the pension pot, and the £100k ISA funds, maybe you can get to sub 50% LTV, which should make the mortgage easier to obtain.

You can always buy your pension annuity later, when you sell property #1. (Sorry, but I don't know what the tax implications of this are - not my area).

If you plan to live in property #2 for the long-term, the advantages of putting it into a SIPP are minimal. In fact, if you didn't have to let it, you might decide not to (having it as a second home). In which case, you could use an election to get the same result as a SIPP, but much more simply.

amnblog

You can't put the property in a SIPP.


The SIPP is a red herring.




The BTL idea on the new property will probably be advantageous from the tax point of view whilst our Barristers are still earning.

Silks

Thanks all. Lots to ponder.

TrickyDicky101

I don't think the pension pot is relevant as the tax impact of accessing it is likely to be prohibitive especially given you are (both?) higher rate tax payers.

Silks

amnblog wrote: »

You can't put the property in a SIPP.


The SIPP is a red herring.




The BTL idea on the new property will probably be advantageous from the tax point of view whilst our Barristers are still earning.

Haha. Just got it... Silks refers to the pit village where I was born. If we were both barristers we'd probably have a lot more tucked away.

amnblog

Worth a guess