Are we missing something obvious on this mortgage arrangement?

K_and_N

Hello,

We are looking to move and our mortgage broker is arranging finance for us. She is someone we respect and she has successfully got our previous mortgages. However on the current arrangement, we are failing to see the logic of it after several lengthy discussions with her. Also we are worried that the purchase process would fall apart if we went along with this. So we'd appreciate what you lovely people think.

Our current residential property is worth £700k and we have £300k mortgage on it. The plan is to making this property let-to-buy (LTB) and porting the £300k mortgage to new property we are moving to. We also have a saving of £50k. So the question is what is the value of new property we can afford to buy. Our broker said from LTB mortgage, we can borrow around £360k. She said with our saving of £50k and porting current mortgage £300k, we could look at properties valued up to £710k (360+50+300). She also said we could borrow more if we want to so we can even look at properties worth more than £710k potentially.

Whilst this was an extremely good news to us, with our simple thinking, we are unable to make sense of it. Our thinking is, since the £300k mortgage will be ported from one property to another, the lender won't be giving this money to anyone. So how are we making full payment of new property?

Are we missing something obvious or was our thinking really daft? Really appreciate if anyone can share their opinions!

K&N

kingstreet

You don't port the actual mortgage, only the terms.

The LTB will pay off the existing mortgage and you will take a new mortgage for the new property with your existing lender. You will port the terms from the old mortgage to the new one.

kingstreet

If you don't want a larger mortgage, you would have your new £300,000 mortgage, £400,000 equity and £50,000 savings to enable you to buy for upto £750,000.

K_and_N

Thank you, kingstreet.

In this case, from the LTB mortgage lender perspective, is that right that they pay off the existing mortgage and give us the £400k equity? Wouldn't they need some kind of deposit/equity in the LTB property?

K&N

[Deleted User]

You take a new mortgage of £360k on your existing property.  
Of this, £300k is used to pay off the current mortgage so you have £60k extra.  

You then add this £60k and your £50k and however much you can borrow on a new mortgage to get a max purchase price.  So to buy a house for £710k you would need a new mortgage of £600,000.  (£300,000 would be your current rate as you would port it and £300,000 a new rate)

You are leaving £340k equity in your property so you cant use that to form your new purchase price

K_and_N

Thank you, Deleted_User.

This makes sense to us. We think for LTB property, there must be at least 25% equity. Since our property is worth £700k, we'd like to take a LTB mortgage of £525k (£700k@75%), £300k is used to pay off the current mortgage so we have £225k extra.

With saving of £50k, we will then have £275k to put down as deposit on a new property. Would that be correct?

K&N

Thrugelmir

K_and_N said:

Since our property is worth £700k, we'd like to take a LTB mortgage of £525k (£700k@75%), £300k is used to pay off the current mortgage so we have £225k extra.

The amount you can borrow will be determined by a number of factors. Such as potential rental income, future interest rate expectatations and your ability to the fund the mortgage /property running costs in the event of no income stream. 

kingstreet

Deleted_User said:

You take a new mortgage of £360k on your existing property.  
Of this, £300k is used to pay off the current mortgage so you have £60k extra.  

You then add this £60k and your £50k and however much you can borrow on a new mortgage to get a max purchase price.  So to buy a house for £710k you would need a new mortgage of £600,000.  (£300,000 would be your current rate as you would port it and £300,000 a new rate)

You are leaving £340k equity in your property so you cant use that to form your new purchase price

Yeah. I've just realised I mixed up an LTB and a sale. The equity can't be used for the purchase because it will remain in the LTB. Apologies!

getmore4less

How do the LTB numbers stack up 

rent tax etc.

Going to take a while to recover the extra £21k if you buy a £700k place.

What rate is this  LTB  £360k 



You need to slap your broker for double counting the £300k.

K_and_N said:

Hello,

.........

Our current residential property is worth £700k and we have £300k mortgage on it. The plan is to making this property let-to-buy (LTB) and porting the £300k mortgage to new property we are moving to. We also have a saving of £50k. So the question is what is the value of new property we can afford to buy. Our broker said from LTB mortgage, we can borrow around £360k. She said with our saving of £50k and porting current mortgage £300k, we could look at properties valued up to £710k (360+50+300). She also said we could borrow more if we want to so we can even look at properties worth more than £710k potentially.

Whilst this was an extremely good news to us, with our simple thinking, we are unable to make sense of it. Our thinking is, since the £300k mortgage will be ported from one property to another, the lender won't be giving this money to anyone. So how are we making full payment of new property?

Are we missing something obvious or was our thinking really daft? Really appreciate if anyone can share their opinions!

K&N

£360k LTB gives you £60k net  after clearing the £300k

porting the terms on £300k gives you   £300k+£60k+£50k = £410k.

[Deleted User]

K_and_N said:

Thank you, Deleted_User.

This makes sense to us. We think for LTB property, there must be at least 25% equity. Since our property is worth £700k, we'd like to take a LTB mortgage of £525k (£700k@75%), £300k is used to pay off the current mortgage so we have £225k extra.

With saving of £50k, we will then have £275k to put down as deposit on a new property. Would that be correct?

K&N

yes that would be correct but there is presumably a reason your broker said £360k would be available?  Rental income is the most common restriction.  What is our estimate on what your property would rent for?  To get £525k at a half decent interest rate you would likely need to rent it for in excess of £3000 a month

K_and_N

Thank you getmore4less and Deleted_User!

She said we would be looking max 2.5% interest rate on £360k LTB. The rental income estimated by a couple of estate agents is only £2350 per month. So it doesn't look like we can borrow as high as £525k.

One thing very clear to us now is that our broker got this completely wrong. It's disappointing but are glad to be in this situation before it gets too late.

K&N