Second Mortgage advice

MNM2903

Hi,

My partner has a mortgage on her own, the total of the mortgage is about 75k plus she took the government help to buy loan which was 22k. The house was bought for 111k.

Recently it has been valued at 122k. What we are wanting to do is possibly see about a second home whilst keeping this one on, we have an appointment with Halifax about this tomorrow but I wanted to try and get an understanding of where we stand. In terms of savings we only have around 3k cash saved but we have plenty disposable income now. In wondering if the equity we have in this house can help fund a deposit for a second home, and if we rent this place out would that go down as an income and cancel out the fact that we have this mortgage as well, in terms of affordability? Also worth saying that we did intend to stay here and save until 2020 to raise the deposit ourselves, circumstances have changed though so we're hoping we can get a bigger place sooner. Also this time round I would be going on the mortgage.

Thanks
Michael

SpiderLegs

Hi,

I’m not sure if you are allowed to rent out a property that has a HTB loan?

AnotherJoe

That is my understanding also.

MNM2903

You can't have a buy to let mortgage, what we plan to do, and I should have mentioned was remortgage for the full amount with me and her on the mortgage, and pay the htb loan off.

NinaSwiss

You typically need around 20% deposit for a BTL mortgage.

How much do you and partner earn and what's the price range for the new property you are looking to purchase ?

MNM2903

We make 50k per year combined. I don't think we need BTL mortgage as you can get a consent to let online via Halifax as long as you've owned the property for more than 6 month, it costs £50, we have a friend who recently done this.

NinaSwiss

So from what you've said, it sounds like there is about 25k equity in the property: eg 122- (75 + 22). About 80% LTV .

Someone more knowledgeable will be able to give you some pointers on weather you'd be able to borrow more(to pay off HTB loan) as well as get consent to let on same mortgage product. I'm doubtful.

If it is a remortgage then technically you start from month 1 again and will need to build up to 6 months for consent to let.

NinaSwiss

Your income seems healthy for properties up to around 200k if that's what you are aiming for (assuming no debt, dependants or huge outgoings). The challenge will be if you can release equity whilst still retaining existing property under consent to let.

MNM2903

We're in two minds about renting it to be honest. In an ideal world we would like to so that we can pass it down to our daughter/use as retirement pot. We would consider selling and then buying as our main reason for wanting to move is for more space. 200k is the most we are looking at, we have about 5k debt on an interest free credit card/Argos card and store card and we have about 3 k savings. We know if we stay we will have more deposit come 2020 but when you get that itch and start looking you can't help yourself . So long as it's affordable then we will definitely be considering it more seriously. I'll check back in tomorrow after we've spoken to Halifax and we know where we stand, thanks for the advice up to now, really helpful

AnotherJoe

MNM2903 wrote: »

We're in two minds about renting it to be honest. In an ideal world we would like to so that we can pass it down to our daughter/use as retirement pot. We would consider selling and then buying as our main reason for wanting to move is for more space. 200k is the most we are looking at, we have about 5k debt on an interest free credit card/Argos card and store card and we have about 3 k savings. We know if we stay we will have more deposit come 2020 but when you get that itch and start looking you can't help yourself . So long as it's affordable then we will definitely be considering it more seriously. I'll check back in tomorrow after we've spoken to Halifax and we know where we stand, thanks for the advice up to now, really helpful

You can have and then leave your residential house, pension pots, ISAs, shares and cash to relatives. What's so special about lumbering them with a tenanted house that in later retirement will be increasingly more onerous to manage?

And since you effectively have nothing in savings (your "savings" of £3k, not even enough for SDLT and legal fees on the new house let alone the potential BTL are merely borrowings on a credit card) I'd be quite confident any theoretical profits from letting a house out would be wiped out by the higher mortgage repayments you'd need on your new residential house,plus the extra SDLT.
FWIW the Hkafix are very unlikely to give you indefinite CTL so aftea year it two even if you giot it you'd have to go to a BTL mortgage. Is that in your business plan?

Verix

My first concern would be the stamp duty. On a property price of £200,000 you're looking at an extra £6,000 in tax. I know you said £200,000 would be top end but that's probably your first few years of rental profit eaten up by tax.

Secondly, after paying back HTB you'll have about £22,600 in equity left over. Obviously Halifax won't let you take out all of this, more than likely wanting 10% equity in the property. This leaves you with £10k for deposit. Of course you've also got the £7,500 stamp duty i mentioned earlier, £2,500-£3,000 in legal fees. Yes there are lenders that can accept a loan for deposit and you might have help from mum and dad available to help bridge the gap but why bother?