Mortgage Deal - Does this make sense?

FNG_2

Long time lurker, first time poster!

I'm having difficulty selling my home, despite reducing the price. My current home is valued at £100k with £65k outstanding on the mortgage. The home I want to move to is valued at £115k. I have no spare cash for a deposit.

I have spoken to a mortgage broker who has proposed the following deal:

1. Get a buy to let mortgage of £50k on my current home, get a tennant in to pay the interest only mortgage.

2. Port the £65k outstanding mortgage and add the £50k raised on the buy to let mortgage (total £115k) to the home I want to buy.



The bit I can't get my head around is that I will be porting the existing £65k mortgage over to the house I want to buy without it being paid off on the house I live in now.


When I queried this, the broker said not to worry as the "£65k owed on house 1 would be ported to house 2, add the £50k from the BTL mortgage on house 1 and there's your £115k to buy house 2; just make sure you get a tennant in to pay the interest only mortgage on house 1"


Still sounds too good to be true to me! Does it sound Kosher to you guys?


Thanks,

Fred.

MarkyMarkD

Not really, no.

Your broker is cunningly converting you from a potential customer borrowing £80k on a residential mortgage (which won't in practice complete, because you can't sell the property) into a real customer borrowing £50k on a BTL on which he'll earn a higher rate of commission.

And he's leaving you exposed to house price movements on two properties, rather than one.

The scenario would only make sense if the existing property will earn an adequate rental return on its £100k value - not just the £50k mortgage, which is something of an arbitrary value - and if you were 100% confident it would be both permanently occupied and that prices wouldn't fall. Neither are certain.

If you do as he suggests, and can't keep the property occupied, you will end up paying mortgage of £165k rather than £115k. Not a happy place to be. And £50k of that will be at a higher rate than a residential mortgage too.

Rick62

This makes no sense. If you get a £50k BTL mortgage you have not even paid off the existing mortgage and have not released any equity fior a deposit for the new house.

The bottom line is, to keep you existing house and buy the new one you would need £180k of mortgages (apart from costs). Do you feel comfortable borrowing this much - particularly in a falling market?

UK007BullDog

Heed the warnings you got from above.

However it can be done what your broker said.

I would do a couple of things though before you decide your next moves.

1. Find out why your property is not selling. Is it the state it is in? The area? Your neighbours? Is it being advertised properly? Are you sure the price you want is OK?

2. Ask your estate agent what the feedback has been and ask him his own opinion and to be totally honest with you and frank and ask what you can do to change to make it to sell. You might not like what they tell you but be honest to yourself and sort out the issues. Is your property advertised online? Do you have a link to show us and we will comment on it.

3. If your estate agent is pants look for another one. Always choose local estate agents as they know the area and have people on their lists wanting to buy for investments and FTB. Your price is a good FTB price range and also of interest to investors so should sell.

4. Find out what the going rents are in your area. How much could you get and work with the lowest figure. This figure has to cover your Interest only mortgage by 125%.

5. Get up to speed on mortgages. Visit the FSA.gov.uk website http://www.moneymadeclear.fsa.gov.uk/ and get up to speed on BTL.

6. If you go and do this you want to make sure that the BTL mortgage has no tie in period if possible so if you then choose to sell you can without too many penalties.

7. You need to understand if the BTL is unoccupied you have two mortgages to pay. You need to be sure you can get rent easily and reliably.

8. Porting is cheaper than buying a new mortgage. However one should look at the rates you are paying now, the fee of porting and the fees for the new top up mortgage and survey and solicitor costs. You will also have fees, like survey, solicitor and product fees for the BTL.

Once you have all this information you can make a proper decision.

FNG_2

Thankyou very much guys! You've certainly given me some things to think about! I'll talk to my estate agent as well!

If I still can't sell, and I can tee up a good tennant on a no fee, no penalties BTL mortgage, I'd like to do that. I'm confident the monthly rental income will be at least 130% of the monthly interest only BTL mortgage payments.

I still find it hard to understand how I would be porting £65k without it being paid off to my current lender. Doesn't this mean my current mortgage lender is paying out a further £65k without getting the original £65k paid back, making their total paid out £130k? Or am I looking at this the wrong way?

Thanks Again,

Fred.

UK007BullDog

Your old mortgage is ported to the new property.

Your old property is remortgaged onto a BTL mortgage (releasing equity) as much as possible (rental covering interest only mortgage). This money is then given to you to increase your deposit on the new property.

Ported mortgage plus released equity (the BTL mortgage) = new property.