Letting & Buying another Property - Advice Needed

JPMcQueen

Hi, I was wondering if anyone can provide some guidance on an issue I'm faced with.

I changed jobs a few years ago and obtained consent to let my main property out. I have about 50% equity in the property i.e. a 60k mortgage remaining on a house valued at £120k

I now want to release some of that equity (30k) to buy a new property and convert my previous mortgage in to a buy to let. The problem I have is that the bank are saying that the rental income wouldn't be adequate to cover the B2L mortgage even if I extended it to a 25 year duration. Therefore they wont allow me to do it.

But my main income is sufficient that I could leave the original property empty and still meet their criteria for the new mortgage. I get that this is because its based on my income rather than rental income but to me this is just bizarre. They'd allow me to have a house sitting empty as a second property but not allow a rental income from it.

One person suggested that I just apply for a homeowner equity release for the 30k, buy the new property and then tell them that I want to let the previous property out rather than leaving it empty and see what they say/do. This sounds a bit risky but what are they likely to do? They may want me to go on to a B2L mortgage but they've already established that I wouldn't meet their criteria for such a mortgage so thats unlikely I'd presume?

Is there anyway around this as it seems stupid to have to sell the property just to get 30k when my income is more than sufficient to buy both houses on their lending criteria.

kingstreet

So this is based on one lender's criteria, or you've spoken to independent brokers and got this result?

What is the gross annual rent and how much do you want to borrow?

JPMcQueen

Its based on initial discussions with my existing lender. I only started making movements today. I've been renting myself for the last few years whilst letting out my own property to make sure the job worked out etc. My landlord has decided to sell the property though and I dont want to rent next time around.

I'd like to release 28k-30k from the property to use as a deposit on the next which would leave approx 30k equity and so LTV of 75% for the buy to let. Rental income wold be £6600 PA gross.

JPMcQueen

Anyone have a view?

lewishardwick

You say you have consent to let and are currently letting it out. Does the rental income fully cover the mortgage and associated running costs?

If your current lender are unwilling to help with a BTL, you'll need to speak to an independent mortgage broker who has access to a wider range of products and various lenders.

Your friends idea sounds risky. Releasing equity, increasing your homeowner mortgage only for the lender to turn around and withdraw the consent to let.

JPMcQueen

If I had a 90k BTL as I'd like the mortgage would be £394 and the rental income is £550 so 140% give or take. I've been told most lenders look for 120% of mortgage value but the woman on the phone from my lender said the rental income would nee to be £740. I just cant fathom where thats come from.

Pixie5740

JPMcQueen wrote: »

Anyone have a view?

Yes, forget the sales person at the bank and go and see an independent mortgage broker about a let to buy mortgage and a residential mortgage.

If you don't know any get a recommendation from a friend/family or search https://www.unbiased.co.uk

booksurr

JPMcQueen wrote: »

Rental income wold be £6600 PA gross.

mortgage brokers who post on these boards say BTL criteria are:
75% LTV - so you pass at 90/120 = 75% but you are obviously maximising the loan
125% interest rate covering based on 6% interest rate - you fail
90kx6%=5,400 x1.25 = 6,750. Your income is 6,600

combine max borrowing with slightly under interest cover and no wonder your current lender is not keen. See a broker and find if other lenders will be more lenient.

JPMcQueen

booksurr wrote: »

mortgage brokers who post on these boards say BTL criteria are:
75% LTV - so you pass at 90/120 = 75% but you are obviously maximising the loan
125% interest rate covering based on 6% interest rate - you fail
90kx6%=5,400 x1.25 = 6,750. Your income is 6,600

combine max borrowing with slightly under interest cover and no wonder your current lender is not keen. See a broker and find if other lenders will be more lenient.

Forgive the daft question but why do I need to add interest in to the loan separately i.e. 90k + 6% when the interest is included in the mortgage payment? As above, a 75% LTV with them would be £394 per month (which includes the interest) and my rental income was approximately £550 so 140%

I could always charge an extra £12 a month which would take it to £6750

AdrianC

JPMcQueen wrote: »

Forgive the daft question but why do I need to add interest in to the loan separately i.e. 90k + 6% when the interest is included in the mortgage payment?

Because it's looking forward - to a time when the base rate may be 6%, to calculate affordability.

Don't forget you'd be paying the 3% SDLT hike on the property you're buying, too.

JPMcQueen

Okay, thats fair enough. So if I just increase the rent level I'd be okay? Rent levels vary but an extra £12 a month wouldn't be unrealistic. I'm not overly concerned by the extra 3% as we're borrowing on the new main residence well within our limits.