Using letting income in a second mortgage application - can you?(24 Posts)
This is probably a silly question (certainly a very boring one) but I just can't seem to find out. We are planning to move out of London and if at all possible want to let our house and use the income from that to help get approval for a second mortgage for a house to live in.
I probably won't be working for a while (DC3 due in 4 weeks) so we have DP income £65k, which, if we leave most of our capital tied up in London house, doesn't let us borrow enough to get the sort of place we want. But we could be bringing in £14k a year profit from letting (rent minus mortgage) That would make a difference to what we can borrow, but all the mortgage calculators I have seen only account for your salary as income.
So - does anyone know? The whole mortgage approval thing seems like a massive uncertainty at the moment but we really need to know before we decide what to do ie let or sell . Should we go and see an IFA?
We are in a similar position and we were advised by our broker that yes, a lender would consider the income as part of our application. Do make sure that you calculate the net figure after tax, however.
Thanks. Could I ask how you found a broker? The only mortgage advisers I've come across have been the ones in estate agents who just seem to plug numbers into a computer..... seems like we need someone who knows about all the tax and other implications.
Isnt that called let to buy? You're letting your current property in order to buy a 2nd property? You need a broker to find a specialist lender.
Let to buy would be if she used the mortgage on her first property to buy the second. It's not really the same. I think the problem you might have is that as you have no track record of letting out the property, it's a bit of a risk for a lender to take that as a reliable, ongoing income.
Although thinking about it, if you have a lot of capital in your London property then let to buy might be something to look into.
Thanks Mandy and Toast. I hadn't heard of let to buy before. Which have a page on it. Think I'll have a proper look in the morning as it all feels a bit too much for my poor pregnant brain at this time of night
The lettings market is really strong here so hopefully lack of track record won't be too much of an issue....?
I appreciate the help!
50% toast - about £300k capital.
A good independent mortgage broker is John charcoal. I have used them twice successfully but have no connection with them. It's not that expensive and is worth the money IMHO. If they can't help you find a mortgage they don't charge you, you only pay if you get a mortgage offer.
Do you have a btl mortgage on your existing property?
The interest rate on these is more than oo mortgages.
You also have to factor in void periods, higher building insurance, maintenance, gas checks, damage, potential legal costs etc to your predicted letting income.
Definitely have a look into it, as you'll probably want/need to switch to a btl mortgage anyway. See what option will be cheapest with regards to rates etc. A proper btl lender will be willing to work with the rental income as it's as already built into their risk model. A residential lender is more likely to want proof of income.
Not yet - we have a normal mortgage at the moment, which is fixed until early next year. Our calculations are based on buy to let quotes, and I've factored in agency fees and landlord insurance which covers legal things. I Though I am aware we'll need a decent cushion for furnishing, repairs, things going wrong etc!
Would you approach a broker via a high street bank ? I feel a bit clueless about financial advice. Who would have thought I used to work in finance.....
Sorry beast I missed your post. Thanks for the recommendation!
I recommend London and Country - I've used them for three mortgages/remortgages. I found them as they were recommended by the Guardian / Observer.
As they're both free and independent, certainly can't hurt to get a quote form them.
We've done let to buy to move out of London. You remortgage your existing property as a buy to let (you will need to be able to leave 25% ish of the current value and get a btl morgage on the rest which you use to finance the purchase of your new house.
It doesn't seem to make sense to leave a lot of equity in a btl property. You can off set the morgage payments against tax along with all the other expenses. The game seems to be to turn a small profit through the rental process but hope the market goes up as it was your main residence you will also have 18 months before you have to pay capital gains tax.
I'd recommend our mortgage broker also a friend of ours who turned this stuff around for us really quickly when btl suddenly became our plan b. Pm me if you want his details.
Yes to the above suggestion to increasing your mortgage on the btl to reduce the income on it and take out a smaller mortgage on the one you intend to live in.
Thanks everyone - some really useful advice here! Efferlunt I shall try and pm you in the morning when I'm not on my phone.
We were in the same position although didn't move out of London with the new house. We started our application with one provider (can't recall exactly who) and despite saying that they would take the income into account they eventually asked for three years of letting accounts despite us having pointed out that we were still living in the property.
We had to shop around for a new provider who would take the income into account on the basis of letting agents estimates of rent that could be charged. We found that rbs/natwest were able to do this.
We didn't even want profit to be taken into account but just needed them to recognise enough income to cancel out our existing mortgage so it wasn't used as an additional liability for the affordability part of the application.
So its important to establish which providers can take the income into account without a history of letting before you get further through the application to avoid extra marks on your credit record and time wasted. We had asked the first provider but we were very insistent that rbs clarify this before going any further and spoke to underwriting team before giving any details of income and expenses.
We had already remortgaged the first property with santander 6 months previously as at a 75% ltv ratio because they were known for giving a consent to let for the remainder of the fixed term at the same rate. When we phoned up for the consent to let it was given with no questions asked and cost only £299 and runs until the fixed rate stops 5 years after the start of the mortgage.
And as a tax advisor I agree with leaving only the minimum equity (usually 25%) in the let to buy property to reduce your tax liability.
Thanks ch1a. That's good to know about Santander. We have thought about capital gains tax - are there any other tax considerations? We have no other investments to speak of and neither of us are self employed.
Well you will have to do self assessment to pay tax on the rental income but obviously you can off-set expenses against tax. That means mortgage application fees, new carpets, tins of paint, letting agent fees etc so keep all your receipts!
Seconding the recommendation for London and Country brokers.
Just off the phone after an epic call to London & Country. It was really useful, though not quite the answers we were after! I was told that a lender for a second mortgage would discount a buy to let mortgage as a liability as long as the repayments are covered, but they wouldn't count the income towards affordability of the mortgage. Hence we can borrow not very much! I'll try again with RBS and Natwest though as recommended, and see how I get on.
Other useful information was that any capital released from remortgaging our current house may not be acceptable to all lenders as deposit for another. And, if it is, they may expect simultaneous sale and purchase.
Also the amount you can borrow for a buy to let is dependent on the expected rental amount - and based on what we expect to charge we can't borrow anything like 75% of the value of the property, actually only 55%. Ho hum.
Incidentally, we really notice what I guess is the effect of the new tighter rules on lending. Based on DP's earnings of £64k, a credit card bill of £3k and childcare costs of £500 a month, he can borrow only £149k towards a new house. Taking out the childcare costs and credit card bill pushed it up to £255k, so the lifestyle things make a huge difference. And, although I will have no childcare costs once I have stopped work, he said it would be hard to guarantee a lender would not take it into account based on previous bank statements. Yikes. I feel like we have to start living very responsibly, with the prospect of a mortgage lender scrutinising every transaction in my bank account.
Thank you so much for the input everyone. Enjoy your weekends.
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