Let to buy mortgage - how to get around stress tests?

Dorsettraveller

Hello. We have moved to a rental property in Dorset for better schools, want to hang on if poss to our house in Brighton, it’s a great investment and the rental income is £1800 per month. We also don’t want to lose a base in the south east in case we want to come back (jobs etc) We have £700,000 equity in the house. Would like to buy the house we are currently renting for £600,000. With the rental income and our other income we would actually be better off then we are currently by approx £500 per month, we just can get anyone to lend us enough (on a let to buy mortgage) based on the rigourous stress testing.

Any thoughts how we could get around this? Where we could turn? We need someone who will lend based on the equity in the house not just on the rental income alone, Thanks

ACG

Will you be better off after the tax changes on BTLs? As of last week, only 50% of the interest can be declared as an expense. The rest of the income will likely be taxed.

Nobody will lend on equity alone - these stress tests are regulatory requirements. However there are different calculations in place with different lenders.

How much is the rent?
How much will the mortgage be?

kingstreet

You can't use equity in one property as collateral for another purchase unless you realise that equity by sale or mortgage.

You would normally borrow as much as you could on the property to be let and use those funds as a deposit, raising the remainder of the purchase price of the new property on a new residential mortgage.

You got a good independent broker working on this?

Dorsettraveller

Appreciate it is a statutory requirement but we can afford this having worked out the figures. Not sure about the tax issues, we would look at offsetting some for maintenance.

House is Brighton is worth £800,000. Outstanding mortgage of £100,000, purchase price of new property £600,000. We have spoken to a few brokers who say it!!!8217;s not possible based on our income alone because of stress tests factoring in future hike in interest rates, and everybody seems to think this is likely. Even if that were the case we could still afford and house is in great location and would sell quickly if need be....

Dorsettraveller

Also I am not working so would take rental income in my name to minimise tax. Husband works full time

ACG

Im not sure it is a great idea to be publishing your number on here. You have no idea who will call you. You have no idea if myself or Kingstreet are even real brokers (for the record we both are, I have met Kingstreet at some events). You could have anyone trying to call you, charging upfront fees and getting you nothing etc.

You have not said what the rent will be.

You are not going to be able to raise £700k (£100k current mortgage plus £600k) on the current property. So you will need to do an element of Let to buy and an element of a residential Mortgage.

Dorsettraveller

Thank you for advice, I have edited my post.

Rental income is £1800 per month

Husbands income £43000

I also earn £500 per month from managing a rental property on behalf of my mum

Dorsettraveller

If anyone is able to provide details of a good independent mortgage broker then this would be much appreciated. Thanks

ACG

It is very very tight. I think it is doable though.
You are right, the rental income calculation is the deal breaker by the looks of it but there are some lenders who are a little more flexible on it.

amnblog

You are puzzling me here. You say you have spoken to a few brokers who say it is not possible yet you are still seeking a solution.

It is highly unlikely they have all missed the solution.

Taking a five year fixed rate is the best solution to a stress test but I cannot believe these other brokers have not already considered this.

It may be that they have only considered lenders unsuitable to you, again unlikely.

You have not said what you are looking to raise but most lenders will go to about 315,000 on the rental you are suggesting. You might get others to get to around 375,000.

If you are suggesting you need to raise an extra £600,000 plus £38,000 sdlt at higher rates on a £43,000 earned income plus £21,600 rental income it sounds unlikely on the face of it.

ACG

amnblog wrote: »

If you are suggesting you need to raise an extra £600,000 plus £38,000 sdlt at higher rates on a £43,000 earned income plus £21,600 rental income it sounds unlikely on the face of it.

I found a lender who would potentially go to £410k - although I am not sure if they will do LTB. Add in the 4.5x income then it does fit. But good shout on the stamp duty, I did not take that into account. It is a little unlikely to fit once you take that in to account.