Regulated Buy to Let Questions.

SpireCaptain

Good morning,

I wonder if anyone would be able to help with a few questions I have about Regulated BTL mortgages.

Backstory - I'm in a lot of debt (would enter a self managed DMP if/when I know my housing situation is secure) I own a home with my ex partner and have 3 10/11 year old sons.

Current property

£111,000 left on mortgage

house valued at £260,000

We have a deed of trust whereby my ex would get £75k plus 50% equity. I stupidly agreed and didn't protect my £55k and so for a sale price of £260,000 I'd get £37k my ex would get £112,000 approx.

My Mum is 72 and has a few rental properties. It pushed her into the higher rate tax band for the 1st time in her life this year.

My sister is a basic rate payer and my sister in law is a higher rate tax payer. My sister and sister in law have no rental experience and have a residential mortgage themselves. My mum is mortgage free on her residential address but has BTLs on her rental houses.

A mortgage broker I usually use has said to my sister that a regulated BTL would be off the table with the level of debt I have. However all my research online points to the affordability assessment being on the mortgage applicants income (rather than non regulated BTL where it's on 125% of rental income)

Q1. Is affordability for regulated BTL based on the mortgage applicant rather than prospective tenant?

Q2. Would Mums age be a factor in a regulated BTL? I know in unregulated BTL age isn't really a factor.

Q3. If Q2s answer is yes would my sister and or my sister in law (1st time landlords) being on the mortgage application help with length of term of mortgage/affordability/effect on tax?

Mum's figures (not from her usual mortgage broker but from her financial advisor) were £80,000 deposit and £150,000 mortgage (we would sell at £223,000 so I would give up on my equity but ex would still get her £112,000 when mortgage is paid off.

Looking at £915 per month on 6.5% capital repayment regulated BTL.

The reason we thought of buying my ex out of the house is because it's 4/5 bed and we have 3 sons. My Ex will only be able to afford a 3 bed house but will afford holidays abroad etc as will have access to credit and so we thought keeping the boys where they are and don't need to start sharing bedrooms again aged 10 would be more palatable for them.

I would then be able to start my DMP journey financially independent to my ex and my mum and sister.

The other option was Mum paid off debt and I went on a Joint Borrower Sole Propietership Mortgage with my Sister in Law and bought my ex out of the house.

But I don't think that is an option without a bigger deposit.

I'd welcome any thoughts. Thank you.

kingstreet

Regulated BTL is based solely on the applicant's personal income and not on the potential rental income. Suggest you seek broker assistance with options as this is a complex area and your questions are likely to result in 'maybe yes, maybe no' answers until detailed research has been carried out.

SpireCaptain

https://forums.moneysavingexpert.com/discussion/comment/81979891#Comment_81979891

Thank you very much for replying. That was the no.1 question my sister was wanting to know the answer to as if it was a hard no that option would be off the table completely.

silvercar

JBSP mortgage would look at the income and credit of all parties, your poor finances may restrict the availability of that option.

If your SiL bought out your ex, that would be a transfer of equity and the current lender may agree if your SiL has sufficient income to afford the mortgage.

If you are in financial difficulty, who is going to be paying the mortgage, irrespective of whose name is actually on it?

Your ex, walking away with a lot of equity here, do they have any responsibility towards the housing costs of the children?

SpireCaptain

https://forums.moneysavingexpert.com/discussion/comment/81981023#Comment_81981023

Thank you for your reply. My ex's intention is to get a mortgage on her own with £112k approx deposit. She is 53 so maybe a factor. The children will be shared responsibility. She will need to go back up to full time. Currently she works 3.5 days condensed hours due to fatugue. She'll be able to afford a 3 bed I believe and so the twins would more than likely have to share a bedroom.

If my Mum puts down £80k and I put in £20k and she gets a mortgage for £130k I would be paying that. I've paid all mortgage and utilities and food contributions plus household insurance, car tax etc whilst supporting my ex (even though she has her own income) for the last 14 years. That's where my debt has accumulated. I'm financially ruined pretty much but never missed a payment on anything. It's just affordability I wouldn't stand a chance.

I've one a statement of affairs with citizens advice and once my debt repayments are manageable I will be able to afford the mortgage. Currently I pay £580 on a £111k loan. I'd expect be the new mortgage would be about £800 so should be manageable.

silvercar

Funding 2 homes long term on your own doesn't sound sustainable to me. Her increasing her hours and then you still paying the mortgage doesn't sound like a long term plan. I think you need serious conversations on what is reasonable.

SpireCaptain

https://forums.moneysavingexpert.com/discussion/comment/81981589#Comment_81981589

Sorry I'm not sure I follow about paying towards 2 mortgages.

My Mum will buy the house off myself and my ex. Ex can have a mortgage by herself and pay for the mortgage at the property she owns. I will pay rent to my Mum to cover the regulated BTL.

There maybe some Child Maintenance even with shared care as one is classed as the resident parent I believe.

silvercar

https://forums.moneysavingexpert.com/discussion/comment/81981695#Comment_81981695

ok. I read it as you were intending paying both mortgages. You may have to structure things, or take advice, if you pay rent to your mother, she will have tax to pay on it, and worse she can only claim the mortgage interest as an expense restricted to the basic rate.

SpireCaptain

https://forums.moneysavingexpert.com/discussion/comment/81982070#Comment_81982070

Thank you, and apologies I can see I wasn't that clear in my explanation of the likely scenario. Yes, it's a shame my Mother and Aunty didn't incorporate at the start with a B2L company rather than holding all their portfolio properties as individuals. It would've been a more tax efficient option.

silvercar

https://forums.moneysavingexpert.com/discussion/comment/81982134#Comment_81982134

Never too late going forward. Another avenue to investigate, is whether you could hold the beneficial interest in the property with then assisting with the finances on paper. There are cases where hmrc has accepted that the only reason others are on the paperwork was to facilitate getting the loan, but you are actually the sole owner. Or, if others are willing, you could keep everything in your name with a gifted deposit and joint borrower, sole proprietor mortgage.

SpireCaptain

https://forums.moneysavingexpert.com/discussion/comment/81982291#Comment_81982291

It might be worth Mum looking at migrating 1 property each year going forward into a Ltd company to spread the CGT tax implications. I'll suggest she seeks tax advice (or see if her financial advisor has suggested that previously and discounted it).

I hadn't thought about the beneficial interest aspect staying on the deeds do you mean. I suppose a conveyancer might be able to advise with more accuracy than her broker. If we sold to Mum under market value (I forfeit my equity) would that be picked up by a mortgage lender? Therefore I'd be better gifting her in writing my equity. I just don't want my affordability affecting Mums credit file if I stay on the deeds.

If I had no debt then a JBSP would be a preferred mortgage vehicle with a gifted deposit from Mum to buy my ex out of the property and my Mum/SiL on the mortgage for the affordability.