Further advance - 2nd property question

dirtycredit

Hello all,

I have two questions for anyone that can help:

I have a one bed flat with a lot of equity and I would like to buy a two bed house as quick as possible (house prices are still flying up) without selling the flat as I would like to keep it to move back into when I'm old and grey.

I can borrow up to £70,000 from the flat which I would take as soon as all my other personal debt is paid off in October. I would not be in a position to buy for another two years after this.

Question 1: Will any lender for the new house view the further advance on the flat as just part of the flat's mortgage (which will be easily covered by rent) or as a massive debt that will screw up my affordability test?

Question 2: How do banks view switching mortgages to BTL or consent to let if there is a further advance on the property?

Any advice welcome!
Cheers,
DC

kingstreet

You are unlikely to get a further advance for the purpose for which it is intended.

You are more likely going to have to remortgage the flat onto a let to buy product, raising the deposit for the purchase.

Get a letting agent's written assessment of the rental income potential and provided the let is considered self-financing should see affordability for the new residential mortgage unaffected.

Get a broker to manage these transactions for you, as many lenders will want to see documentation from the other to satisfy themselves about the overall proposition.

Don't forget the forthcoming changes to landlord taxation and the SDLT surcharge which applies from £0 when purchasing a second property or BTL.

dirtycredit

Thank you for the response Kingstreet. That's very clear to me now.


I think I was getting the terms 'remortgage' and 'further advance' mixed up.


Thanks again,


DC.

Thrugelmir

dirtycredit wrote: »

Question 1: Will any lender for the new house view the further advance on the flat as just part of the flat's mortgage (which will be easily covered by rent) or as a massive debt that will screw up my affordability test?

Lenders have to consider the impact of the property generating no income as well. In which case it's not just the mortgage that needs to be covered.

AnotherJoe

I take it you are aware of the extra 3% SDLT you'll have to pay on your new house purely so you can move into this flat when you are old and gray?
When, who knows, you may no longer wish to live there anyway? Does it have a lift (unless its ground floor apartment)

And why would you take 70k equity out two years ahead of when you need it??

dirtycredit

Lenders have to consider the impact of the property generating no income as well. In which case it's not just the mortgage that needs to be cove

Thanks for the reply.

There is of course always the danger of not being able to rent it but it's a big one bedroom flat in London with a garden & excellent transport links so I'm hoping it's going to be a winner with renters. I really love the flat myself but I just need more space due to my circumstances.

DC x

dirtycredit

I take it you are aware of the extra 3% SDLT you'll have to pay on your new house purely so you can move into this flat when you are old and gray?

I am aware of this and have factored it to my calculations.

When, who knows, you may no longer wish to live there anyway?

My whole family live in the same area so I can't see myself moving.

Does it have a lift (unless its ground floor apartment)

It's ground floor and the lady that owned it before my was in a wheelchair so it's completely accessable and manageable for someone older.

And why would you take 70k equity out two years ahead of when you need it??

I'm due to remortgage in October so I was thinking maybe I should do it then but now I can see that I can wait another two years save and then remortgage again for the extra money. I also wasn't sure which sequence of borrowing (if any) would be favourable to the banks. I thought that I would move out of the flat rent it out and then apply for residential mortgage because my income would go up slightly and they could see that it's rented and the mortgage is covered. This is why I'm asking really.

Thanks for all the help!

kingstreet

You're getting a customer retention product/product transfer on your existing mortgage in October for a couple of years, then you'll be looking for a let to buy remortgage to change the flat to a BTL and to raise the deposit for the residential purchase.

dirtycredit

You're getting a customer retention product/product transfer on your existing mortgage in October for a couple of years, then you'll be looking for a let to buy remortgage to change the flat to a BTL and to raise the deposit for the residential purchase

I now have a plan.. Time to get saving!

Thank you ever so much for your help.

DCx

Thrugelmir

dirtycredit wrote: »

There is of course always the danger of not being able to rent it but it's a big one bedroom flat in London with a garden & excellent transport links so I'm hoping it's going to be a winner with renters. I really love the flat myself but I just need more space due to my circumstances.

DC x

There's also the possibility that your tenant doesn't pay the rent. You'll be running a business. So need to be prepared for all eventualities.