BTL Mortgage Options with Low Salary?

gazfocus

Just curious at the moment. 

I know mortgages are getting tougher and tougher to get, but just wondering whether there's likely to be any options for these circumstances?

My wife and I are company directors, both on £7,904/yr each income at present as that's all we 'need' from the company. We also get some tax credits and child benefit, but not a great deal. We don't take dividends or anything.

My wife currently has 2 CCJ's (about 4 years old) and we had late payments on our mortgage 2.5 years ago but paid on time every time since.

We rent where we live currently but the house we own has been rented to family until recently. Currently have consent to let from mortgage lender.

We currently have just over 65% equity in the house. House valued at £280k, Mortgage of £97.4k remaining. Rental income of £1500/month.

What's our chances do you think of a BTL mortgage at present? 

Our current mortgage is at 2.06% until April 2027 so we will likely wait until the fixed term comes to an end by which time my wife's CCJ's will have dropped off her credit report anyway but just thinking out loud at the moment. 

Brie

I would think the income is the major stumbling block.  You state between you it's under £16k a year.  But you also have the rental income - or is that all being applied against the mortgage?  Even if it was just going against the interest that might mean another £16k a year.  Could you support 2 mortgages, one at current interest rates with an income of £32k a year?  The ccjs and the missed payment won't help but I don't think a bank will even get there far looking at this.

gazfocus

Brie said:

I would think the income is the major stumbling block.  You state between you it's under £16k a year.  But you also have the rental income - or is that all being applied against the mortgage?  Even if it was just going against the interest that might mean another £16k a year.  Could you support 2 mortgages, one at current interest rates with an income of £32k a year?  The ccjs and the missed payment won't help but I don't think a bank will even get there far looking at this.

Sorry, I was thinking more along the lines of remortgaging our current property to a BTL rather than buying a 2nd property, so we have just under £16k ‘income’ plus the rental income. 

Grumpy_chap

gazfocus said:

Sorry, I was thinking more along the lines of remortgaging our current property to a BTL rather than buying a 2nd property, so we have just under £16k ‘income’ plus the rental income. 

How long has the business been trading?

You say the income is low 

gazfocus said:

as that's all we 'need' from the company. 

It may be worth speaking with a Broker about a remortgage that looks at the company accounts and what the income could be.

OR increase the income that you do draw from the Ltd Co so that you have an established higher income level that makes a mortgage easier to obtain.  You have plenty of time between now and 2027 to set a new baseline.

You seem to live very frugally especially as the £16k salaries plus £18k rental income has to cover the expenses of the rental, mortgage payments on the rental and the rent for where you are actually living at present.

housebuyer143

Lots of lenders do not require any minimum income for a BTL but they do not normally like trading limited companies, and prefer SPVs. You still probably need at least 2 years trading as well. That rent and loan seem fine for affordability. 

You will almost certainly be best of finding a specialist BTL broker when the time comes who is very likely find you a deal. The rate probably won't be anywhere near 2% though. 

gazfocus

Thanks to both of you for your thoughts.

Our ltd company has been trading since 2014.  

I don’t want the ltd company to be involved in the BTL but understand that a lender might want the company accounts to make sure it’s a viable source of income etc. The mortgage/remortgage wouldn’t be to the current ltd company though. 

One option we had thought of was selling the house to a ltd company we form for the purposes of running the rental property but I don’t know enough about that at present so will definitely need to do some research, speak to brokers, etc. (ie would it be worth registered a ltd company now as a SPV and let it sit there until we are ready)?

My only concern with this is that we’d have to sell the house to the company for its market value which could then make the mortgage larger.

Our long term plan is to have a few rental properties and charge fair rents (looking at the long term picture rather than trying to make a quick profit per month), so a ltd company may be the way to go. 

@Grumpy_chap - re living frugally, years of being skint will do that to you We have a family of 4 (2 kids under 8), and we spend roughly £100 a week on food, company pays for my van, tax and insurance, we pay for my wife’s car related bills/tax/insurance etc.

Don’t get me wrong, we long for the day we have money to splash out and treat ourselves but it’s not a priority at the moment and as long as the kids are happy that’s all that matters (also has the added bonus of teaching the kids to not be materialistic). 

housebuyer143

In that case, if you plan to have the BTL in your name I see little problem with you getting one 👍 I am confident the right broker will find you something.

If you get more then you will likely want to set up an spv but worth looking into that when the time comes. 

Grumpy_chap

With one BTL that you already own, selling to a new SPV company is unlikely to be a cost-effective strategy.  It can be a viable option if buying a new property with the intent of letting.

A lender is likely to wish to see the company accounts as part of an affordability assessment.  Are you clear that the frugal living is because you are only drawing what you "need" from the company or are you living frugally because the company cannot support larger drawings?

There are many people that choose to live frugally, perhaps with FIRE in mind, but for this purposes you need to be clear whether it is a choice or forced frugality.  

It is just:

gazfocus said:

re living frugally, years of being skint will do that to you  

we long for the day we have money to splash out and treat ourselves but it’s not a priority at the moment 

does not sound like frugality as a choice.

ACG

There are quite a few more issues here than just low income:
Low income,
None home owner,
Consumer BTL (not a strictly speaking business BTL),
Adverse,
Has the rental income been declared (saying no because xyz wont cut it),
There is also another potential issue in that you are claiming benefits but you have other income you could draw on from the business (ie the retained profits) by the sounds of it - however that also could be used to overcome the lack of income as some lenders use PAYE and net profit rather than PAYE and dividends. 

On a side note, if your business has over (I think) £6,000 in the bank account, you need to check whether that effects your entitlement to benefits. Although the money belongs to the business I seem to recall it cropping up with a lender where they basically refused a case as the client should not have been eligible for the benefits the were claiming. 

All sorts of issues here. I dont think any of them are deal breakers but combined you could find it quite tricky. 

gazfocus

ACG said:

There are quite a few more issues here than just low income:
Low income,
None home owner,
Consumer BTL (not a strictly speaking business BTL),
Adverse,
Has the rental income been declared (saying no because xyz wont cut it),
There is also another potential issue in that you are claiming benefits but you have other income you could draw on from the business (ie the retained profits) by the sounds of it - however that also could be used to overcome the lack of income as some lenders use PAYE and net profit rather than PAYE and dividends. 

On a side note, if your business has over (I think) £6,000 in the bank account, you need to check whether that effects your entitlement to benefits. Although the money belongs to the business I seem to recall it cropping up with a lender where they basically refused a case as the client should not have been eligible for the benefits the were claiming. 

All sorts of issues here. I dont think any of them are deal breakers but combined you could find it quite tricky. 

Thanks for your input. 
So would we be better off if we bought a home in addition to the BTL do you think? One thing we had thought of was to remortgage our current house to a BTL mortgage to give us the deposit for a residential mortgage elsewhere, but again, that will be a few years down the road.

Yes the rental income is fully declared - 50% going to myself and 50% to my wife, we both submit tax returns with the rental income on.

As our business is a ltd company, the company accounts are completely separate to our own and HMRC confirmed they don't have any bearing on our tax credits claim. That said, we tend to invest whatever money we can back into the business so there's never more than a couple months of salaries/bills in the company accounts anyway as it will usually be held in stock. 

As I said, our aim is to do something at the earliest, when our current fixed rate ends in 2027 but the reason we are starting to think about it now is so that we can position ourselves for the best outcome when the time comes if that makes sense.