Maximising Assets

Payam_Azadi

My parents left me a debt free house 6 years ago that's been valued at £550000. For the past 4 years I have been renting it out, currently I will get £16000 pa.
I live in a rented house but want to buy my own. I have been told I can raise a buy to let mortgage of £220000. My husband can then raise a mortgage on his income. Unfortunately the total amount isnt enough to purchase the property I want. I had previously been told I could borrow 3/4 of the inherited property which would have been £412500 and then my husband raise a mortgage now it seems that advice was wrong but I don't understand why. Some constructive advice would be welcome.

Thrugelmir

In principle you could raise a mortgage for 75% of the property value. However your financial circumstances won't allow this. That's a summarisation of the situation.

A £16k return on £550k isn't particularly good. You may be better off selling the property. Buying your dream home for cash. If you still want to hold property as an investment. Then use the remaining equity to help fund a suitable BTL which offers a better return.

AnotherJoe

Payam_Azadi wrote: »

Thank you for your reply. My husband earns £43000, I get £16000 in rental and we get share dividends, farm single payment and have £308000 of shares. I don't understand why we can't afford interest only repayments on 3/4 of the value of the house.

Shares and share dividend wouldn't be acceptable as those can disappear overnight and the rent you charge would barely cover an IO BTL mortgage of that size.

As said you might be better off to sell the house, buy the one you want to live in (getting a very low mortgage rate due to a very low LTV) and use spare cash (again with good LTV) to buy a property specifically for BTL, that can be targetted to get a better return as its aimed at the rental market. Maybe a a coupel of houses or flats rather than one larger house perhaps?

kingstreet

Payam_Azadi wrote: »

I don't understand why we can't afford interest only repayments on 3/4 of the value of the house.

What's your chosen lender's rental cover calculation?

If it's 125% at 5.5%, as an example, you would need the rent to be £28,359 to justify a mortgage of £412,500.

£412,500 x 5.5% = £22,688 x 125% = £28,359.

Your rental income of £16,000 equates to a mortgage of £232,727.

Thrugelmir

Payam_Azadi wrote: »

Thank you for your reply. My husband earns £43000, I get £16000 in rental and we get share dividends, farm single payment and have £308000 of shares. I don't understand why we can't afford interest only repayments on 3/4 of the value of the house.

Rental income is not guaranteed. If your tenants defaulted or the property was empty then you would have to bridge the deficit. Not only fr the mortgage but the running costs of the property.

Likewise shares are capital. Sell them and use the cash.

Lenders have no control over your other assets. Mortgage finance is cheap as it's low risk to the lender. Add complexities and lenders will shy away. As debt recovery is a highly expensive operation.

kingstreet

Payam_Azadi wrote: »

I expected to get 3/4 of the house which is £412500 because lots of sites say they will lend that but in reality they look at the rent.

The lower of 75% or the amount considered self-financing based on that lender's rental cover calculation.

You need to pay attention to all the criteria to ensure you are actually eligible.

getmore4less

Gross yield 2.91% is very poor.

After costs and tax etc it will be lower you need to review that letting business.

CGT means shares have gone up a lot why is that a problem?

Thrugelmir

getmore4less wrote: »

CGT means shares have gone up a lot why is that a problem?

Staggered redemption would have avoided CGT.

getmore4less

Depending how long they there should be a fair amount tucked away in ISAs by now.

I though the farm single payment scheme was stopped last year

AnotherJoe

Payam_Azadi wrote: »

I'm also screwed over CGT on the inherited shares.

That's your fault but it also makes the point that you say you have £308k worth of shares but actually you don't.

Senior_Paper_Monitor

You desperately need a financial adviser rather than an internet forum !