Buying a second home...

MartinLewisFan

Hey Folks

(Still a newbie, and only my second post - so apologies in advance it appears weak!)

OK, so, I'm looking at getting a second home - not so much as a buy to let, but rather to move into a larger home, and offering the smaller home to my "fiercely-independent" mother to live in.

The mortgage on the original small home is very modest, and dear-ol'-mum has agreed to contribute to the small mortgage outstanding, freeing me up to find a new home.

I suppose my question is, having found suitable home(s) (well, options), can I use any of the collateral on my first home?

As ever, any advice is gratefully received.

G_M

Remember your 2nd roperty will attract Additional 3% SDLT.

Yes, you could use 'collateral' (equity?) on your existing property by increasing the mortgage on it to free up cash towards your 2nd property - providing of course your income is sufficient to justify both mortgages (assuming a 2nd mortgage on the 2nd home.

Speak to an independant mortgage broker about lenders for a 2nd property and your income /entitlement.

You might have problems with your current lender though as your crrent mortgage is presumably a standard residential mortgage - you're expeted to use it as your main residence.

Probably have to switch to a BTL mrtgage (mum is paying you rent if she's "agreed to contribute to the small mortgage outstanding"), so you'll be a landlord. See lnk elow for more on that!

And many BTL mortgages don't permit letting to family...... again, see an independant mortgage broker.


* New landlords: advice, information & links

kingstreet

MartinLewisFan wrote: »

I suppose my question is, having found suitable home(s) (well, options), can I use any of the collateral on my first home?

No.

The last cross-charge facility ended some years ago.

As G_M has indicated, you would actually need to borrow by increasing the mortgage on the current property and this will be problematic due to your plans for its occupancy.

LEJC

Someones going to ask it so it might as well be me...where is mum living at the moment?

MartinLewisFan

G_M, Kingstreet - Thank you both for your excellent input and insight.

MSE is a brilliant forum and all the posters are the reason for it.

So much to think about!

LEJC - excellent question (made me chuckle as well!) - My mother is actually recently retired, and renting privately for sometime, but because we're not very smart, and didn't have the means either, so we've recently come to realise late in the day that she's using her hard earned savings and pension to fund a stranger's mortgage (no offense intended!) instead of putting her putting that money to work closer to home (if you'll pardon the pun!)


She's paying over a grand month for a humble place to rent, and that's way more than my current mortgage. I said she can take my home for free and I'll buy another place, but having worked all her life, she'll not have it. The compromise is that she'll only move into my place if she pays the mortgage - fair enough.

She'll save a lot by doing that, but it will leave me with a challenge of finding and funding my next [family] home. Hence my question :-)

I think the long-n-short of it is: work harder, try to earn more (not always easy!)

00ec25

MartinLewisFan wrote: »

The compromise is that she'll only move into my place if she pays the mortgage - fair enough.

She'll save a lot by doing that, but it will leave me with a challenge of finding and funding my next [family] home. Hence my question :-)

I think the long-n-short of it is: work harder, try to earn more (not always easy!)

so, if you take out a mortgage on your ex home and your mother pays money towards it that means you are legally her LL as mother is neither named on the mortgage nor is she an owner of the property

it sounds like no lender would accept her on a mortgage anyway, and you cannot be an owner of a property that has a mortgage without being a party to it as the lender will not allow it.

so...
you will be in receipt of rent from your tenant
you will pay a mortgage

as your tenant is your mother then the mortgage will be a Regulated BTL mortgage. Very few lenders offer those so you will need a broker and will have to shop around to find a lender willing to give you such a loan (at possibly a high rate). A Regulated BLT mortgage means it will be based on your own income, not the level of rent paid by your mother. So you may or may not be able to get a separate mortgage on the place you are buying because lenders will do your affordability calculation on the basis your income is already allocated to an existing mortgage and so you may not have much left over with which to fund a second mortgage

therefore you will need to do your sums carefully to find out how much you can borrow in total and how much, if any, of that would make sense to have as a Regulated mortgage on your ex home.

As you will have a rental income from your mother you will also need to be careful about how much income tax you may have to pay on that rent. If the mortgage is a repayment one that only the interest element can be offset against your income for tax purposes. Any capital repayment element is taxable against you

you have a lot of things to consider....

MartinLewisFan

OOec25

Many things to consider indeed!

I didn't realise it would be this challenging, but then again, things are that worth it often are!

Without going into the actual numbers, as it stands, I've been pretty sensible (no extravagance, no debts... Yet!), so:

1. My current home (proposed ex-home) has 1:3 ratio in terms of mortgage to home value (so around 33% of mortgage outstanding).

2. Income wise, the monthly Mortgage payment takes 15% of net income. If Mum takes over, and pays the mortgage, then this would drop to zero, freeing me up divert income to that second home (the new family home).

I wonder if that's something the banks would consider...

Lots to ponder - I think I'll be giving an Independent Mortgage Broker a headache soon!

hazyjo

MartinLewisFan wrote: »

2. Income wise, the monthly Mortgage payment takes 15% of net income. If Mum takes over, and pays the mortgage, then this would drop to zero, freeing me up divert income to that second home (the new family home).

You need to lose the thought of your mum 'taking over the mortgage'. She's not. You will be totally responsible for it and you will be the bank's risk. Whatever she pays you will be classed as rent. You cannot avoid the fact she will be a tenant and you will be a LL.

saajan_12

MartinLewisFan wrote: »

2. Income wise, the monthly Mortgage payment takes 15% of net income. If Mum takes over, and pays the mortgage

That's all well and good, but your current mortgage is likely a residential one, for you to live there. In order to let it to your mother, you would need either
a. Consent to Let from your lender (they may/may not agree as the tenant is a relative and if they do, probably for a limited time period); or
b. Regulated Buy To Let mortgage (fewer choice of lenders, much higher interest rate than a residential so higher mortgage payments)

Could mum afford this?

MartinLewisFan wrote: »

If Mum takes over, and pays the mortgage, then this would drop to zero, freeing me up divert income to that second home (the new family home).
I wonder if that's something the banks would consider...

Yes and no.. you're still responsible for the mortgage on the current property and as the tenant is a relative, the lender will assume you'll be unlikely to evict if mum stops paying. So the current mortgage will be treated as part of your outgoings when calculating affordability for the new mortgage.
Can you afford that?

Plus you'll have to pay higher rate stamp duty on your purchase, so an extra 3% of the total price to be paid upfront.
Can you afford that?

aneary

Have you thought of selling the current house and look for a house which has a granny annex, you would avoid a lot of the headache then? Or even a house that has the space (plus likely PP) to build one?

G_M

aneary wrote: »

Have you thought of selling the current house and look for a house which has a granny annex, you would avoid a lot of the headache then? Or even a house that has the space (plus likely PP) to build one?

OP can buy my home with granny annexe.....when I find the ideal property I've been searching for for the last 2+ years........