Potentially two mortgages at the same time....how to deal with the bank

OneInTheHat

I live in a house (house 1) at the moment, solely owned by me. It has a remaining mortgage on a capital repayment basis.

I got an in principle agreement based on the amount I can borrow (based on my salary and the next size up house I would like to buy).

I have had an offer accepted and formally applied for the mortgage on house 2. I am going to put house 1 on the market but I only want to sell it if it can achieve over X in price. It is not an overambitious amount at all and X is a lot less than what the estate agents believe it can be sold for (around 20% less).

If I can sell it for X, I will almost be mortgage free (for house 1 and house 2, this is because I have a lot of equity in house 1).

However, ii I can't sell it for X, I will rent it out. it is in a hugely rentable road, walking distance to station, river, local schools etc. and should have absolutely no problem being rented out. The rent on house 1 (pre tax) would cover easily an interest only BTL mortgage on house 1, all the bills of house 1 plus 30-40% of the capital repayment mortgage on house 2. At the moment, house 1 mortgage has just come off a 2 year discounted capital repayment rate of 0.79% onto the variable rate but I will leave it there because I don't want to start another mortgage when I don't know whether it will be sold or leased.

I don't feel it's an unsensible strategy in this market. I called the bank this morning to explain this to them and they told me 'their forms don't allow the explanation of this'. So I said yes but this is why I am calling to explain (grr). They seem concerned that they may be a period where both houses will need supporting, which I understand as they will look at it from the highest risk perspective and this may happen but if it did, it would be short term and the in principle offer of theirs (the max I can borrow) is way over house 1 plus house 2 mortgage together (this is based on my salary)..

So just wondering 2 things so I can be prepared in advance. Are they likely to want to see house 1 sold or rented before they grant me the mortgage for house 2? And if they won't need to see that, will they need to know whether house 1 will be sold or rented because it will impact the mortgage on house 1 (whether it goes to BTL or simply gets paid off)?

amnblog

That depends on the Lender.

They defined processes and if your 'plans' do not appear to match them you may get no lending at all.

Thrugelmir

OneInTheHat wrote: »

I called the bank this morning to explain this to them and they told me 'their forms don't allow the explanation of this'. So I said yes but this is why I am calling to explain (grr).

Lenders set the terms of the mortgage. You apply and they'll make a decision based on the facts at the time. What might or might not happen is not relevant to their decision. Simply too many variables. Too expensive in administration terms to offer such a service on any scale. Most importantly they only have your word for it. In the world of finance, words alone aren't the basis of a long term relationship. As people have a habit of changing their minds or not being truthful.

Lilla_D

When you applied for the new mortgage, what did you declare on the application in terms house 1? Did you say that you'd keep it as resi home or that you were going to sell it or that you'd rent it out? Because you have a mortgage on it, you would have had to declare what you were going to do with it. The lender will go by what you declared and the solicitor would also want to ensure that that's what happens.

It's not necessarily a problem, if you change your mind (subject to T&Cs), but it may mean additional steps. E.g. if you declared that you'd sell it, but now you'll rent it out, then you may be asked for a consent to let from your current lender or for a new BTL mortgage offer and a rental letter or even a rental agreement.

OneInTheHat

thanks all - it's been approved subject to valuation so now i will just cross my fingers and wait for that to happen