B2L mortgage on house we will end up living in?

by Readers Question

15:05 PM, 17th June 2020
About 2 months ago

B2L mortgage on house we will end up living in?

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B2L mortgage on house we will end up living in?

We have a property on the market for £385,000, mortgaged at £120,000 on an expensive 4% RBS One account. We want to unlock the potential from the house & downsize

We found a house that we really want, which was sold, but which has subsequently fallen through, I have an idea to get £62500 (25%) deposit, fund the rest with buy to let interest only mortgage (£187,500), Install tenants and move in ourselves when our house sells.

I am told we would incur £10,000 stamp duty. What other costs penalties would we incur, is there a different way we could secure this house before we sell our own?

Our short plan was to sell ours, move the mortgage to our new house, change lenders up borrowing to max, £150000 pay £100000 cash
Use £285000 to go house shopping and buy a place for cash, install tenant, remortgage, get our money back, repeat the process ….
We really want this one particular house how can we secure it?

Many thanks Dan & Lois



Comments

Neil Patterson

15:11 PM, 17th June 2020
About 2 months ago

The new mortgage you are considering would be a consumer BTL regulated under the FCA, because it is your intention to live in the property in the future and you would need to disclose this to the lender.

You would also pay an additional 3% Stamp duty surcharge as a second property although you may be able to get this refunded if you sell your main residence and move into the new one. However, this is an unusually way round of doing it and you would need to check this with your solicitors first.

The real risk is having let your intended new main residence and then cannot obtain possession.

Tom Heffron

9:06 AM, 18th June 2020
About 2 months ago

You could potentially look at Bridging Finance a little more costly, but you may find it will be more favourable in terms of application and time scales. As Neil has stated if you use the sale to repay the proceeds, you have the potential to recoup the stamp duty.

Dylan Morris

9:52 AM, 18th June 2020
About 2 months ago

Reply to the comment left by Neil Patterson at 17/06/2020 - 15:11
Especially when Section 21 gets withdrawn.

Simon M

11:01 AM, 18th June 2020
About 2 months ago

You'll have extra mortgage arrangement costs & a higher rate, costs to prepare the house for letting and possibly letting fees, plus all the work. If you're not a landlord already and don't want to be one, it may not be worth it. It'll take time before the rental income repays your outlay.
The problem is selling your own house quickly. Is the current agent marketing it well? Honestly review if it's worth the asking price in today's market. Instead of paying out more, use the money you'd pay out to price your house aggressively subject to a fast sale. You should get a sale quickly. (Lesson I learned when the market crashed in the early 90s.)
Finally, research solicitors carefully - some will do a better job at getting a quick but safe sale.

silversurfer2017

12:05 PM, 18th June 2020
About 2 months ago

I have done this myself so I can comment with some experience. We wanted to downsize but we had specific requirements regarding location and type of property and we decided that we wanted to buy our new home first. We are pensioners which rules out several options. We bought our new house on a 2 year BTL mortgage and are currently renting the house and intend to continue to rent the property for two years and then pay the mortgage off without penalty. We were pleased that decided to take out rent guarantee insurance and we thought that £33 per month was good value to cover a monthly rental of £2,500. We had to pay the extra 3% stamp duty but if we sell our existing main residence within 3 years and move into the new property then we can claim this extra stamp duty back.

Morag

22:01 PM, 18th June 2020
About 2 months ago

We had a One Account, and it was life-transforming. I can't think of a better mortgage, and wish they were still available. The interest sounds high at 4%, but the APR on most standard mortgages is higher than this when you take arrangement fees etc into account. Plus, due to the way it works, if you use it to full advantage, you should pay less interest overall. We used it as our current account for all our finances, and with all the rental income passing through, we saved a fortune in interest and any debit balance came down rapidly, but the credit facility was still there when needed for larger purchases such as repairs, or further deposits. If I were you, I'd enquire how much of a credit facility you could get by transferring the One Account to the new house (worth £250k?), which will depend on the value and your income, age etc. If you can get 70% LTV that would give you a facility of £175k. You could simultaneously apply for a BTL mortgage on your existing house to cover the shortfall needed to purchase the new house ( 250k + 10k Stamp Duty + legal fees etc?£3k). This would be around 90k, but of course, the anticipated rent might enable you to borrow more, perhaps up to £150k or more? The more you raise on the BTL, the more interest you'll save on the One Account, but I'd still go for the maximum facility, as you don't need to use it all at any one time and you only pay interest on the daily balance. Try to get a BTL with no early repayment charges, as you'll probably want to sell it within the time period when you can still reclaim the 3% (£7.5k) extra Stamp Duty. Can't remember offhand if this is still 18 months or now down to 9 months? Either way, you'll get to keep the fantastic One Account, and the transaction can be done as quickly as it takes to arrange the two mortgages to complete on the same day. You'll be able to move into the house yourself immediately instead of renting it for a while and maybe having to evict the tenants. The rent will probably cover both of your ongoing interest payments, and you'll still have your former home growing in value until you choose to sell it. If you buy the new house initially as a rental property you'd have to declare this, and I don't think you'd then be able to reclaim the 3% even if you later move in. Doing it this way will be much cheaper than using bridging finance, and there's no particular time pressure to pay it back or sell up, except to reclaim the 3% in time. If your long term plan is to buy more rental properties, you can use any surplus credit in the One Account for deposits, and the additional rents will again help to reduce the debt and save interest. This is how we accrued ten rentals, as well as substantial works on our own house, using nothing except the One Account allowing us to utilise the equity in our house. We also re-mortgaged a few BTLs in the early years when they were increasing in value, but not sure if there's much mileage in that strategy these days. That's what I'd suggest anyway. Good luck whatever you decide.

Puzzler

9:17 AM, 20th June 2020
About 2 months ago

Do the terms permit you to use the reserve to purchase another property? How long is the One account term which remains? You will have to clear it at that point. Subject to those questions it looks like you have enough to buy the second property cash. You can remortgage when your current house is sold

Morag

9:55 AM, 20th June 2020
About 2 months ago

Reply to the comment left by Puzzler at 20/06/2020 - 09:17
The One Account acts like a current account with an overdraft facility, secured against your house. The overdraft limit is set using essentially the same criteria as any mortgage, LTV, borrowers' age and income multiples. When it was still available to new borrowers, you could opt for two repayment types; one with a limit which reduced over the term so that you could never fall behind the payments required to pay off the loan. The second option was a fixed facility which remained throughout the term, meaning you would need to plan for how to repay the loan at the end, assuming you kept dipping into it. If you pay all your incomes into it, even if you end up spending most of it again on the usual expenses, you will automatically be making overpayments without trying, and therefore saving interest. This should put you ahead of your payment plan, so you build up credit within the "overdraft" that you can use for whatever you like. We opted for the fixed facility which gave us plenty of reserve for deposits etc. Between big purchases, the balance would come back down rapidly, so we never worried about being in debt at the end of the term. Sadly, it seems few people could grasp how this fabulous and extremely simple mortgage worked, even bank staff. An earlier version which we also had was introduced by Clydesdale Bank. Brokers didn't promote it, banks couldn't convince people about it because it sounded too good to be true. It literally could shave many years and many thousands off any mortgage, without any change in lifestyle, but folks didn't get it. Some went mad and bought ridiculous things with the credit facility, then complained it was dangerous when they found they couldn't pay at the end. Now they've been withdrawn, more's the pity.


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