Complicated House Buying Scenario!

About-time

Hi folks
Myself and my other half are about to apply for a mortgage, but the situation is what you might describe as 'a bit fiddly', so I thought I would ask for opinions before we proceed. 

Until very recently, we owned two houses, our main house and a small rental property. We have sold the main house (sale completed last week), and temporarily moved into the rental while we look for something else. One reason for doing this was that unfortunately we had got ourselves into a fair amount of debt, and selling the house gave us the opportunity to clear a large chunk of it, and still keep enough back for a deposit on a new property. There is still however some debt outstanding, we could clear SOME more of it and still retain a decent deposit, but by no means all of it. 

The rental house has been fully refurbished, new kitchen, new bathroom, new carpets, new doors, rewired and decorated throughout. This was all very necessary as after many years of wear and tear and a few anti-social tenants, we couldn't comfortably have lived in it ourselves or rented it out again without a bit of a spruce up and some modernisation. We have paid for this again through the sale of our main house. We could wait until we have found a new house and get a new tenant into the rental property, or should we choose to, there is enough equity in the rental to sell it, clear the mortgage, pay back what we spent on renovations and (hopefully) still turn a small profit. 

So my questions are : 

1) Are we better applying for a new mortgage with the rental property listed as a rental, bearing in mind we can supply statements up to Nov/Dec last year showing the regular monthly income from rent? Or will it be a problem that we are temporarily living there, so at present it is generating no income? OR should we just whack it up for sale, meaning the rental side of things is no longer relevant and the situation is more straight forward?

2) Should we clear every bit of debt we can, while still leaving ourselves (at least) a 10% deposit? Or is it better to apply with higher levels of debt but a higher deposit to put down?

3) The remaining debt, while not huge, is spread across 3-4 credit cards. Would it look better to a mortgage lender if we consolidated it all into a loan before we apply for the mortgage, making things neater and potentially lowering the monthly payments, or should we leave as is to avoid any unneccessary credit checks?

All opinions greatly valued. 

K_S

@About-time

2) It all depends on the specific numbers, but generally speaking in the current market you want to aim for a 15% deposit.

3) Having the same total debt on 1 or 4 credit cards will make no significant difference.

1) Hard to comment without more detail. I wouldn't want to unknowingly mislead you one way or the other. Imho, whether to sell the property or not needn't necessarily be based on the ease of getting a resi mortgage.

About-time

K_S said:

@About-time
1) Hard to comment without more detail. I wouldn't want to unknowingly mislead you one way or the other. Imho, whether to sell the property or not needn't necessarily be based on the ease of getting a resi mortgage.

Thank you for your reply, and I think you are right on this point - we could sell it, or keep it on as a rental, whichever works out best for us (and we're undecided)  - I just wondered whether the monthly rent would contribute to the amount we can borrow on another mortgage, and whether a lender is likely to accept last year's statements as proof of rental income?

Windofchange

Surely the solution is to sell the rental, clear all your debts, have a larger deposit (depending on what equity you had in the rental) and buy a larger main residence? With all the recent changes in tax on rentals, was it really making you much money anyway? The other consideration is that if you hold onto the rental, you will be liable for the extra stamp duty as you will have two properties on completion of whatever new house you buy. Depending on which part of the country etc, this could be a significant sum of money. Does it really sense to keep holding it? 

K_S

About-time said:

K_S said:

@About-time
1) Hard to comment without more detail. I wouldn't want to unknowingly mislead you one way or the other. Imho, whether to sell the property or not needn't necessarily be based on the ease of getting a resi mortgage.

Thank you for your reply, and I think you are right on this point - we could sell it, or keep it on as a rental, whichever works out best for us (and we're undecided)  - I just wondered whether the monthly rent would contribute to the amount we can borrow on another mortgage, and whether a lender is likely to accept last year's statements as proof of rental income?

@about-time It is unlikely to contribute towards affordability, especially given that you are currently living in the property. Is it mortgage-free, on a BTL interest-only mortgage or consent to let?

Thrugelmir

Why not remain in the "rental" for a while and use the time to get your finances into order.  Otherwise sounds as if you are heading back to a similar place that you've just been.  Having incurred a huge amount of expense in the process to gain nothing. 

K_S

Windofchange said:

Surely the solution is to sell the rental, clear all your debts, have a larger deposit (depending on what equity you had in the rental) and buy a larger main residence? With all the recent changes in tax on rentals, was it really making you much money anyway? The other consideration is that if you hold onto the rental, you will be liable for the extra stamp duty as you will have two properties on completion of whatever new house you buy. Depending on which part of the country etc, this could be a significant sum of money. Does it really sense to keep holding it? 

@windofchange They just sold their main residence, and so can use the main residence exemption to escape the 3% (in England) surcharge. That applies irrespective of the number of additional properties in the background.

https://wards.uk.com/news/penalty-stamp-duty-rate-main-residence-exception/#

About-time

K_S said:

About-time said:

K_S said:

@About-time
1) Hard to comment without more detail. I wouldn't want to unknowingly mislead you one way or the other. Imho, whether to sell the property or not needn't necessarily be based on the ease of getting a resi mortgage.

Thank you for your reply, and I think you are right on this point - we could sell it, or keep it on as a rental, whichever works out best for us (and we're undecided)  - I just wondered whether the monthly rent would contribute to the amount we can borrow on another mortgage, and whether a lender is likely to accept last year's statements as proof of rental income?

@about-time It is unlikely to contribute towards affordability, especially given that you are currently living in the property. Is it mortgage-free, on a BTL interest-only mortgage or consent to let?

That's what I wondered. It's never been a big money-spinner, but it used to contribute a steady £200-300 a month in rent after mortgage, insurance etc was paid for. Obviously it won't make us that money again until after we have moved back out and found a tenant. We've had it valued, and the likely sale price would clear the mortgage, pay us back what we have spent on refurbishing, and probably give us a few thousand to use towards a new house, so I think selling will probably be the route we go down.

Thrugelmir

About-time said:

K_S said:

About-time said:

K_S said:

@About-time
1) Hard to comment without more detail. I wouldn't want to unknowingly mislead you one way or the other. Imho, whether to sell the property or not needn't necessarily be based on the ease of getting a resi mortgage.

Thank you for your reply, and I think you are right on this point - we could sell it, or keep it on as a rental, whichever works out best for us (and we're undecided)  - I just wondered whether the monthly rent would contribute to the amount we can borrow on another mortgage, and whether a lender is likely to accept last year's statements as proof of rental income?

@about-time It is unlikely to contribute towards affordability, especially given that you are currently living in the property. Is it mortgage-free, on a BTL interest-only mortgage or consent to let?

That's what I wondered. It's never been a big money-spinner, but it used to contribute a steady £200-300 a month in rent after mortgage, insurance etc was paid for. 

No mention of tax? 

About-time

Thrugelmir said:

About-time said:

K_S said:

About-time said:

K_S said:

@About-time
1) Hard to comment without more detail. I wouldn't want to unknowingly mislead you one way or the other. Imho, whether to sell the property or not needn't necessarily be based on the ease of getting a resi mortgage.

Thank you for your reply, and I think you are right on this point - we could sell it, or keep it on as a rental, whichever works out best for us (and we're undecided)  - I just wondered whether the monthly rent would contribute to the amount we can borrow on another mortgage, and whether a lender is likely to accept last year's statements as proof of rental income?

@about-time It is unlikely to contribute towards affordability, especially given that you are currently living in the property. Is it mortgage-free, on a BTL interest-only mortgage or consent to let?

That's what I wondered. It's never been a big money-spinner, but it used to contribute a steady £200-300 a month in rent after mortgage, insurance etc was paid for. 

No mention of tax? 

How do you mean? Obviously we do pay tax on the rental income if that's what you're referring to?

Thrugelmir

About-time said:

Thrugelmir said:

About-time said:

K_S said:

About-time said:

K_S said:

@About-time
1) Hard to comment without more detail. I wouldn't want to unknowingly mislead you one way or the other. Imho, whether to sell the property or not needn't necessarily be based on the ease of getting a resi mortgage.

Thank you for your reply, and I think you are right on this point - we could sell it, or keep it on as a rental, whichever works out best for us (and we're undecided)  - I just wondered whether the monthly rent would contribute to the amount we can borrow on another mortgage, and whether a lender is likely to accept last year's statements as proof of rental income?

@about-time It is unlikely to contribute towards affordability, especially given that you are currently living in the property. Is it mortgage-free, on a BTL interest-only mortgage or consent to let?

That's what I wondered. It's never been a big money-spinner, but it used to contribute a steady £200-300 a month in rent after mortgage, insurance etc was paid for. 

No mention of tax? 

How do you mean? Obviously we do pay tax on the rental income if that's what you're referring to?

Wasn't clear from your post. Many people don't declare the income. Nor understand that only the interest element is tax deductible. So the real return is actually considerably lower if tax is factored in.