Bridging loan as a possible solution?

pjs493

I've found a house I really love, but having had initial advice from a mortgage broker's online tool, it's suggesting that my rental income won't be considered for income purposes to get a mortgage on the property I want. Having filled in their online form, I expect someone will ring me next week to talk about my circumstances.

I inherited a rental property from my husband who died last year, following Probate the mortgage was paid off on that property. I plan to sell it, but the current tenant, who has been in the house a long time, wants to buy it off me but isn't in a position to do so immediately; they'll likely be able to do so next year.

I wasn't planning on buying until I sold the rental property. However, my dream house has come up and I hoped to get a mortgage for the shortfall between savings and the cost of the house, but without the rental income being considered it seems I can't get a big enough mortgage. Ironically, the difference is about the same as the amount of money I used to pay off the mortgage on the rental property.

I'm wondering whether a bridging loan may be a better option in my circumstances? I was originally planning on paying off the mortgage once the initial term ended with the proceeds from the rental property (and shoving the money in a good fixed term savings account in the meantime), but if I really only need the mortgage for about a year, could a bridging loan be a better option? 

The value of the rental property is the same as the shortfall between savings and the cost of the new house. Without the sale of the rental property I'll have about 50% LTV on the new property.

I'm loathe to market the property from under my tenant's feet given that he's been a good tenant from day one and is fairly close to being able to buy the property off me. But if needs must, I suppose I may have no other option.

theartfullodger

Talk to a couple of buy2let mortgage brokers.  I'd be surprised if someone won't take rental income into account.

pjs493

theartfullodger said:

Talk to a couple of buy2let mortgage brokers.  I'd be surprised if someone won't take rental income into account.

As in remortgage the rental property to release equity and then have the cash to buy the new house? I hadn't thought about that, that's not a bad idea actually as it would give me the income stream (albeit with a mortgage to pay) but would also make me chain and possibly mortgage free on the new property so that might make me an attractive buyer and possible help in negotiating the purchase price.

theartfullodger

The brokers are more devious than my brain.  See what, if anything, they suggest.

I remortgaged when only owning rental properties, but (apologies) have other assets and pensions... (76)

Hoenir

You may find the cost of bridging finance rather high. Certainly for a period as long as a year. 

housebuyer143

I was about to come on and say remortgage the rental, but bare in mind you need to leave at least 20% in it. 
I would be surprised if you can't find a lender who takes profit from the rental as income though. 

pjs493

theartfullodger said:

The brokers are more devious than my brain.  See what, if anything, they suggest.

I remortgaged when only owning rental properties, but (apologies) have other assets and pensions... (76)

I'm in the fortunate position (albeit unfortunate in that most of it has come to me due to the sudden death of my husband last year) of having quite a lot of money in liquid assets as well as a mortgage free rental property. Ideally, the rental property would be sold leaving me with all the cash needed to buy my chosen property without the need for a mortgage. 

As a relatively young widow (in my 40s) I also have a guaranteed pension income for life (linked to CPI) in addition to income from other sources such as a job and the aforementioned rental income. I had hoped this would make me attractive to mortgage lenders, but initial research is showing that many may not consider the rental property income because it was declared on my husband's tax returns before he died. Whereas one might be made redundant from a job, my pension will always be there.

I think I need to find a good mortgage broker to talk me through my options. I'm quite new to this because my husband was in the military so we used to move every couple of years. Other than the rental property he bought in his early 20s, we'd not gotten around to buying a home for us as a family due to the frequent moves. I've so far deliberately not transferred the Land Registry into my name for the rental property. Because of this I have, for the time being, retained my first time buyer status. If I sell it soon, and the proceeds can therefore come to me as cash rather than as a property, I can keep that status. Obviously if I were to get a buy to let mortgage on the rental property I would lose this and may have to pay SDLT on the new house. But once the rental property sells I'll be mortgage free.

pjs493

Hoenir said:

You may find the cost of bridging finance rather high. Certainly for a period as long as a year. 

Yes, I think that's one of the reasons why I'm really looking at it as a last resort. Until I make an offer, etc I don't really know exactly what position I'll be in. I'm just thinking of my options if I can't get a mortgage that takes the rental income into consideration. Next week I'll need to speak to a mortgage broker, my tenant, liaise with the vendors agent, etc to get a clearer picture.