Let to Buy mortgage arrangement timing questions?

by Readers Question

15:39 PM, 1st June 2017
About 2 years ago

Let to Buy mortgage arrangement timing questions?

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Let to Buy mortgage arrangement timing questions?

Hi, I am in need of some thoughts/ideas from the Gurus here.

Wife and I live in our flat in London – Mortgage with First Direct.
About 210k mortgage left, flat value 500k.
Mortgage is being switched to an offset interest only mortgage circa £300pm still with First Direct.
Potential rental income £1650pm from flat.

We are looking to buy a house as our new main residence for around 450k and do it up i.e. extend/refurb IDEALLY before moving in to the place as we have a baby – want to avoid moving into house, then move out during works and back in after all done.

We were thinking if it is possible to remain in our flat during the works and then intend let out the flat when we move into house. With the interest only payments on the flat mortgage being £300pm this would be cheaper and much more convenient than renting somewhere. Once works are completed we then convert mortgage on the flat to BTL/get consent to let, and move into the house. We are financially comfortable paying both mortgages at the same time for the duration of the extension works i.e. say £2500pm on house mortgage of 405k and the £300pm interest on the flat mortgage.

My questions are:
1. Timing – Is it possible to get a residential mortgage on the 450k house purchase at say 10% deposit (so we spare as much cash as possible for the refurb/extension) AND remain in our current flat under the current residential offset/interest mortgage while works are done (say 6-9 months while getting planning permission etc)? Or would lenders require the current mortgage be changed to BTL without any overlap on new mortgage allowed? Thoughts?

2. Assuming above is possible or if some lenders would say yes but require more deposit (say 20%), is there a way to unlock some equity (say 50k) from the flat from current mortgage for the new purchase extensions? Or would we have to consider personal loans (no bad credit history)?

Thanks

Golo



Comments

Neil Patterson

15:57 PM, 1st June 2017
About 2 years ago

Hi Golo,

This is a very tricky one to answer without doing all the Fact Finding and application leg work.

If I have this correct you are staying in the Flat therefore, no need to get consent to let on this or change to BTL until you are going to move out.

The new purchase you are not moving in to so this is going to potentially need to be a shorter term Refurb loan.

I would consider discussing the plan with First Direct to see if they can increase the mortgage on the flat to help with the house purchase short term and then port or take a new mortgage when the house is complete and repay the refurb finance on the house and arrange a BTL on the flat ready for when you move out.

There are a lot of variables though here and I think you will need an IFA/commercial broker to help with the purchase and discuss directly with First direct your plans.

It also depends on your income and what you can justify under MMR rules.

Also any advice involving you main residence is regulated and cannot be given by anyone other than a qualified advisor after completing a Fact Find.

Howard Reuben CeMap CeRER

16:20 PM, 1st June 2017
About 2 years ago

Lots of questions and I’ll do my best to clarify, as follows;

“We were thinking if it is possible to remain in our flat during the works and then intend let out the flat when we move into house”

You can buy a second home on a residential mortgage, as long as the ‘affordability’ is agreed by the second lender

“With the interest only payments on the flat mortgage being £300pm this would be cheaper and much more convenient than renting somewhere. Once works are completed we then convert mortgage on the flat to BTL/get consent to let, and move into the house. We are financially comfortable paying both mortgages at the same time for the duration of the extension works i.e. say £2500pm on house mortgage of 405k and the £300pm interest on the flat mortgage.”

However, if a BTL, or CTL agreement, is a higher rate than First Direct, so your payments may be affected.

“My questions are:

1. Timing – Is it possible to get a residential mortgage on the 450k house purchase at say 10% deposit (so we spare as much cash as possible for the refurb/extension) AND remain in our current flat under the current residential offset/interest mortgage while works are done (say 6-9 months while getting planning permission etc)? “

As above, yes it may be possible if your financial and credit status is deemened ‘affordable’ (by the lender).

“Or would lenders require the current mortgage be changed to BTL without any overlap on new mortgage allowed? Thoughts?”

You can’t live in a property that you own which has a BTL mortgage on it, so that would not be allowed / possible anyway.

“2. Assuming above is possible or if some lenders would say yes but require more deposit (say 20%), is there a way to unlock some equity (say 50k) from the flat from current mortgage for the new purchase extensions? Or would we have to consider personal loans (no bad credit history)?”

Additional monies can be raised via; further advances, second charges, capital raising remortgages etc. However the increased mortgage will then have an affect on your borrowing ability for the second / new home of course.

To determine if you are eligible for one, or two, mortgages, the mortgage market research process starts with a detailed discussion with a professional Broker.

My Team are available to contact via my profile link above.

Hope that helps.

Golo Chung

18:33 PM, 1st June 2017
About 2 years ago

thanks both! i spoke to a whole of market broker/IFA today and he is happy that i can get the second residential mortgage based on our finances. the only sticky point is unless we go for 20% deposit, we would need to convert current mortgage to BTL as very few lenders would consider second residential mortgage at 90% LTV.


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