Second Charge Mortgage / New Mortgage?

Windofchange

Hi all,

Question around the purchase of a second property. Myself and my other half own a house that is currently let on an appropriate mortgage, and due to career moves, we currently rent in another part of the country. We are wanting to start a family, and therefore have been considering options with regards to purchasing another house in our current area.

I am unsure of how to best proceed with this. We have a reasonably large deposit saved, and both earn good wages, so finances I am hoping should not be too much of an issue. I am unsure about how having our current house will affect our ability to get a second mortgage however? I have done some reading around and it looks like we would need a second charge mortgage? This would allow us to use the equity in our current house as a deposit for our next one? I'm not sure if I have understood this correctly or not?

The other option of course is to sell our current property and then go as new buyers for our new home. We would rather for a number of reasons hang onto our current house though, and would continue to let it out. We currently make around £200 a month excess once the mortgage is paid.

How much will having a property already impact our purchasing power for any new home? Is it difficult to get such a mortgage? We have an appointment with a mortgage advisor in a couple of weeks time, but looking to get some rough idea first.

foxy-stoat

I would sell the first property and use the equity and some of your savings for your main and only property.

Typhoon2000

If your current property is let and rent is coving the the interest component of the mortgage payment buy the required amount, it won’t affect you new mortgage application with most lenders.
You would still need to have a deposit for you new purchase as usual though.

TrickyDicky101

You'll need to budget for the 3% additional SDLT charge too.

Thrugelmir

Windofchange wrote: »

We currently make around £200 a month excess once the mortgage is paid.

Only the interest element of your monthly payment is tax deductible. The capital element is not. After tax the return might be as good as it appears to be. Not declaring the income can lead to all sorts of penalties. In the longer term you need to factor in the fact that the property will suffer wear and tear and items such as boilers/windows will require replacement.

Brodiebobs

We did the same and we were told as long as the rent covers the mortgage it was excluded from affordability calculations, we used a broker but found of the 3 lenders they offered us all used the same format.

Luckily this was before the additional stamp duty, but you'll have to take that into account now too.

MortgageMamma

If you are renting your house out to tenants, to have that income included for a future mortgage it needs to be declared and on your tax calculation and overview. If you have not rented it out for that long, it generally can't be included and you would only be able to use your salaries.

The new lender would want to see that the rental property is self financing, so as a general your rent payment needs to be around 125% of the mortgage payment if you are a basic rate tax payer, for higher rate tax payers its around 150-155% of the mortgage payment that is needed.

From the sound of your post you would benefit from some professional advice. it is possible to get another first charge mortgage on a new property if you have consent to let/a specific buy to let mortgage on your old residental property. If its still on a residential mortgage its possible to ask your lender for consent to let the property out, again this is a general bit of information and a full assessment of your circumstances would be a good idea so you can build a plan of action with your Mortgage Adviser how to finance both properties most efficiently.

Don't forget there will be additional stamp duty and legal costs to pay for the new purchase, a Mortgage Adviser will be able to draw up a summary of costs and work out how much you can borrow on your new property.