Buy to let/ residential query

Wanno

I have a cottage that I bought last year with the help of my parents. Its a very long story- the cottage is a terrace of three. My parents bought and renovated the other two and when the third one came up for sale they used me to buy it so they could also renovate that one rather than have randoms living there or to use as a bed and breakfast/holiday let in the future.

So anyway I am now the proud owner of (technically 2/3s) of a property. My parents put up the rest of the money that my mortgage wouldn't cover so I don't own the whole thing and will have to either pay them back or when selling give thema third. Hope that it clear.

The Cottage is on a residential mortgage with me. I rent while the property is being done up/extended and when it is finished my sister would like to rent it from me/parents.
I have a number of questions that I am hoping someone will know the answer to.

Do I have to change the mortgage to a buy to let?

If I change to a buy to let am I free to get another residential mortgage for myself so I can actually live in my own house rather than renting still? (ignore all comments about waiting to buy now/property slump etc- its for info only)

How does having a buy to let property affect how much deposit you have to put down on another house? would it still be the standard 10-15% of the purchase price or am I barking up the wrong tree?

Any advice on this kind of area would be useful as I can't really find any info on websites or the like.

Thanking you!

NeilQuinn

Couple of questions first.
1. How much is the true value of the property?
2. What's the outstanding mortgage?
3. How much have you got to repay your parents?

Wanno

Mortgage was 120,000 Parents gave 60,000: Total 180,000
Theoretically I have to repay them the 60,000 or 1/3

True value as stands is 220,000 at present when renovation is is estimated to be about 230-242,000

repaid 640 each month from March last year- 35 year mortgage

NeilQuinn

Okay - there's a fair amount of equity then. How much rental income would you receive? (Sorry - should have asked this in my first lot of questions)

Tiddler_2

In terms of buy to lets - generally speaking if the property is occupied by a member of your family, then the lenders will not allow a buy to let mortgage. However, you would have to check whether sister comes under their definition of family.

If you do manage to get a buy to let then there is no problem in buying a property to live in, and you could do it with a 5% deposit.

If you keep it as a residential mortgage, then it will affect your ability to get a residential mortgage, on the grounds of affordability. Lenders will work in 2 ways when working out if 2 residential mortgages are affordable.

1. They will look at the total amount of mortgage(s) your income can sustain. So if you have an income of £40k and the lender would go to 4 times income, then you can get total mortgages of £160k. You currently have a mortgage of £120k, so you could get a further mortgage of £40k.

2. They deduct the monthly payments for the mortgage from your income, as a credit commitment. So using the same figures, if your monthly payment was £600 p.m. £40k - (12 x £600) = £32800 x 4 = a new mortgage of £131200. A big difference!!

These are just examples (obviously) to illustrate the difference.

Hope that helps!!

UK007BullDog

Your sister is your sister. So if she resides in the property it can stay as a residential.

Any property which is occupied by at least 40% of a close relative (mom, dad, sisters, brothers, grandparents, grandkids and some lenders even include nieces & nephews, cousins, uncle, aunt (even adopted)) it can stay as residential.

You can get a residential mortgage for yourself. The lender will just ask for proof that you have rented out your first property to a family member. That lenders underwriter will ask you or not. But in todays climate you will probably be asked to supply proof.

The BTL will not have a great impact on your ability to get another property. But you will need a deposit.

Hope this helps.