Buying a new family home and renting out existing flat Scotland

Dylan_Starsky

Hello, I'm new to the forum but just looking for a bit of advice and guidance if possible?

My current situation is that my wife and I own our current flat outright and have put down an early bird deposit on a new house which won't be finished until March or April 2017. We plan to rent out our current flat, possibly on a short term basis, so we can 1. Release equity to part fund the new house and 2. Hopefully move seamlessly into the new house as soon as it's ready with minimum stress etc. There is a very good chance that we will be renting our flat to our brother in law who may also be in a position to buy it in a couple of years (should we choose to sell) so we have a tenant in waiting.

The new house is going to cost approx £250k + an additional £10k (new 2nd home stamp duty) and we reckon we might need another £20k for upgrades to the new house, kitchen, bathrooms etc etc so I'm budgeting the total cost all in at £280k. By the time our house is ready we will have saved approx £40k. We both have excellent credit, no other debt and My bank have confirmed they would lend us up to £160k for the new house.

Our current flat is worth approx £140k and we could easily get £650 - £700 per month rent and from looking at the buy to let calculators we should be able to raise £100k to use as part of the deposit for the new house.

My questions are:
1. Does the above sound feasible I.e. Raising money from my existing flat to part fund the purchase of our new family home?
2. With us needing to get a buy to let on our existing flat and getting another residential mortgage for the new home would we be better speaking to our own bank? (Tsb and Santander) or are we better going to a mortgage broker as its complex?
3. There is a chance we might decide to sell the flat after renting it out for a short period say 12 months or 18 months. I'm aware that we'd be able to claim some of the stamp duty back if we did this but I'm thinking we could get hammered in early repayment charges. Would it be best to take a 2year buy to let to raise the funds to initially see how it goes?
4. There is a chance I could borrow £80k - £100k from my parents who have just sold a house. If I did this I would pay them back after selling my flat. If I borrowed money from my parents or they put the funds in my account as part of a deal between us could this cause a problem for me when trying to get the rest of the money on a residential mortgage??

Any comments or advice would be much appreciated, my head is getting a little sore from trying to think through the different options.
Cheers
D

MortgageMamma

It all hangs on affordability - you don't say what your earnings are or what your earnings will be that far in the future when you wish to apply for the mortgage itself? It would also be necessary to check your regular outgoings and credit commitments.

On the face of it I think you need professional advice - you will essentially be wanting a buy to let on an unencumbered property to capital raise to buy a further residential property not all lenders will consider that - very much depends on whether the amount you wish to borrow is supported by the rent + surplus for repairs etc

Nobody on here will be able to offer any detailed opinion as without the personal information required (earnings, age, credit commitments etc) its not possible to provide a solution.

Caz3121

Dylan_Starsky wrote: »

There is a very good chance that we will be renting our flat to our brother in law

this may also be an issue...have a search on - BTL rent to family members

Dylan_Starsky

Hi thanks for getting back. I earn £33k plus overtime between £3-£5k p/a and my wife is working part time earning approx £5k. I am 38 and my wife is 36 and we have two kids.

I was intending to charge less for rent as its to a family member so £600 - £650 rent pcm. However I could easily get £800 + based on rent for identical sized properties on the street where I live which are currently let.

amnblog

1) yes
2) broker
3) your broker will advise a suitable product and lender
4) lenders can get comfortable with a 'gift'. Loans they don't like.

Dylan_Starsky

We also have zero credit commitments, no loans, bad debt or any other committed spending except for utilities and council tax. We have 1 credit card that we pay in full every month so we earn maximum interest on our current accounts

MortgageMamma

Hi Dylan

There really are a few hurdles to overcome here, why is it that you don't want to sell your existing flat and then just use the money towards the new place?

I meant to mention earlier in the thread, if you take the broker route pretty much any broker can access Santander but I think TSB only go through some bigger broker firms. That said, you can still ask your broker to consider TSB in their research for you. I know a lot can change between now and when you are ready to apply for a mortgage on your new build but if you do the figures now you have a rough idea of what you are looking at further down the line.

The fact that you are renting out to a family member at under market value as well as capital raising for a future purchase could reduce the numbers of buy to let lenders willing to assist quite dramatically. If there are any other elements such as the flat is ex local authority or near/above commercial premises this could also further reduce the selection.

MM

Dylan_Starsky

Hey,
Thanks for the advice. We wanted to hang on to our flat for several reasons.

Firstly we don't have an exact date of when our new home will be ready and we were thinking it could pose a problem. If it takes longer to sell or the sale falls through at the last minute we will be in a position where we need to borrow more money from somewhere to make sure we don't lose the new house. Also if it sells quick we then might have the added stress/expense of having to rent in the interim.

Secondly we're thinking it might be a long term investment for us but to be honest if we weren't renting it to someone we know and would trust I probably would prefer to sell it and put the money to my new mortgage.

Do you think if I borrowed the money or was gifted the money from my parents until I sold the flat that this could uncomplicate the situation? If I did this I'm thinking I could then rent it to my in law for whatever I wanted then if I sell after 18 months to them I could pay my parents back in full and claim the stamp duty back. Providing my parents were willing to 'gift' lend it until I sold the flat? Or is this also fraught with danger?

jennifernil

If your parents are willing to lend the money on the flat, this is no problem. They can lend instead of another mortgage lender.

I have done this for my daughter, we had an proper agreement drawn up and I placed a charge on the property. The legal costs were £180 3 years back. (Scotland)

If you pay them interest, they will need to declare this as taxable income.

Having done this for my daughter, she now has, with my agreement, total freedom as to when she makes a repayment, and total freedom to sell the property and redeem the mortgage when she wants.

I am charging her interest, at a rate that is good for me and reasonable for her, so a "win-win" situation. I do not have enough income to pay tax, so what she pays me just goes towards using up some of my personal allowance.

As the lender, I have not placed any restrictions on who she can rent to, and presumably neither would your parents, so this seems to me an ideal situation, if it fits in with what your parents want to do.

MortgageMamma

Dylan

SOME lenders are comfortable w ith parent/child gifts and some are not. Most would not consider a parent/child loan. If your parent gifts you some money they will need advice about inheritance tax separately as will you.

I think the first step in all this is to calculate affordability for the new purchase, so you can then work out what you NEED to raise from either your parents or the remortgage of your current home. Once that is done you need to look at rental income and if that can support the buy to let mortgage. One potential problem here from a lenders perspective is you are renting to a family member which they do not like as its a risk to them (who would evict their own family if it came to it). You may wish to rethink to whom and for what you plan to rent it out to/£.

Another issue is buy to let lenders may want to see that YOU can afford the repayments on the BTL mortgage should your tenant not pay or the property remain empty for a bit. You also need to factor costs of repairs. This could leave you in a situation that means neither mortgage is affordable.

dimbo61

This is one for a broker who needs to look at TWO separate mortgages.
One BTL and a residential mortgage on your new home.
If you sell your flat within 18 months of moving into the new home then you would get the 3% extra you will pay in stamp duty back !!
Has your Brother In Law got the same surname as you ?
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