Mortgage advice for property investors
Questions are answered by our Mortgage Maestro,
Mark Dyason of www.edinburghmortgageadvice.co.uk.
Low credit rating
I own a property which I have been trying to sell for the past 6 months to no avail. Unfortunately I need to move and since I can’t afford to keep paying for the property I need to rent out the property. I have a Northern Rock Together mortgage and I believe since I have moved to the Asset Bank that they will say no to renting out. What are the options for changing mortgage to a buy to let. I only have £5000 equity now due to the price crash. I can get £650 a month in rental income.
I have a bad credit rating due to credit card debt and am in repayment plans however I have no defaults on my record. Will this mean I have no chance?
Unfortunately it looks like you are right about getting permission to let from NRAM (the asset bank side of the Northern Rock split) however never assume so you might not be in the Asset side so check and even if you are make them say no, and put the full case to them (this is better done in writing) that this is a better solution than not allowing you let it out and the potential situation arrears/potential danger of repossession that could lead to. They need to ‘treat their customers fairly’ – a key phrase!
On getting a Buy to Let remortgage, the best loan to value is currently 80% and it is unlikely that someone with a low credit score would get a new mortgage, so unfortunately it looks unlikely you could use this course of action
We desperately want to move home however we are in a fixed 5 year deal with First Direct – will they give us consent to let out our home to allow us to let elsewhere; and will this incur any extra charges/ costs?
In my experience First Direct say no to letting out the property, however policy and criteria change all the time so I would advise calling them to make sure they still feel the same way. Most lenders charge an admin fee of £50-£100 to their customers as part of the permission to let process and leave you on the rate you are on, however some lenders will ask their customers to move on to other products this is a lender by lender policy choice.
Again best to approach your current mortgage lender, First Direct.
For a new mortgage, talk to a broker about finding a lender that will help you achieve this and get a new loan, some lenders won’t lend on a new property until the income from the old one is underway, others will ignore it if it will be self funding.
We took out a 125% mortgage with Northern Rock in 2007. We believed that the unsecured loan was unsecured. Now that we wish to move, they are saying we have to pay back the whole amount, which is £132,000. Our property is only worth £115,000. They are saying that there is nothing we can do unless we can make up the shortfall. Which we can’t.
If we had off known this we would never have taken out this mortgage.
We have a fairly good income of £42,600. But we do have a couple of loans.
Is there anything we can do?
Could we ask permission to rent our property and get another mortgage? How does this work? I guess we would need a deposit for this?
The ‘top up’ portion of your loan is unsecured and does not have to be re-paid when you move, however the interest rate climbs significantly when you uncouple it from the main mortgage.
This means you should be able to move, however this loan and the others may restrict the amount you can borrow, speak to a broker about your full situation and get an idea of the size of loan you could get.
On letting out the property you need to get the lenders permission for this, this for Northern Rock will depend on which part of the business you are in. I would recommend that you call them and ask what your options are with regard to this. If you were able to, then you would need a deposit of at least 5% for you next.
My son bought his first flat with a 2 year fixed mortgage LTV of 75% from First Direct and moved in in December 2011.
Now he has found a new job, which unfortunately is in Switzerland and is considering renting out the property.
First Direct says he must find another mortgage before renting (probably May 2011) and will not give a consent to rent.
Will working and being taxed in Switzerland (so non-resident) make it difficult to find a deal?
Will 6 months occupancy (Dec – May) be sufficient to get a new buy to let mortgage?
Does he need to pay for another survey?
Can his proof of income be self certified as he will only be a few months in his new job.
Firstly, it shouldn’t be difficult to find your son a buy to let mortgage, it would likely to be on an ex-pat basis (from the international arms such as Lloyds international or RBS international) unless he is going to work for a multinational company when companies such as Birmingham Midshires will look at it.
The income side of things is based mainly on the rental income he will receive and so there should be no need to talk about self certified (which really no longer exists), he is likely to show what his new contract will pay him and where he will get paid.
On the survey it depends on the deal you end up going for some include a free remortgage service that will cover this and the legals however can be a little more expensive than those without.
Lastly most buy to let companies require 6 months ownership before they will do a remortgage, however Northern rock only requires 3 months.
It is possible to turn your buy to let into a residential mortgage, however as you suggest this will mean you need to show that this is affordable to you. There are a number of lenders happy to take any pensions that you may have in to account as part of this.
On the available term to help keep payments affordable, most lenders are looking at a maximum age of 75, however some are willing to go beyond this. I recommend chatting to a broker about your circumstances to get a full picture of your options including perhaps equity release as a means of paying for the house.
I am currently living in Wales and need to relocate my family to the South of England for a new job. Our existing mortgage is fixed rate until 2012. Can I apply for a consent to let on a fixed rate mortgage? Our current mortgage lender is Northern Rock. Or will I be liable for ERC?
If the answer is yes I can apply without ERC and CTL is approved, can I then buy another house on our existing residential mortgage? Or will this be subject to ERC?
You can apply for consent to let on a fixed rate with Northern Rock.
With regard to the new mortgage, if you still have your old mortgage in place on your current home which is now let out, you will need to apply for a new mortgage on the purchase.
I want to buy a £45k studio flat in a VERY popular student area to rent out. I have the 25% deposit required for a buy to let mortgage however due to the fact my gross salary doesn’t meet certain requirements I would be unable to buy the flat on a buy-to-let basis.
What are the legal implications of me buying the flat as a first-time buyer and renting it out anyway, and also what are the chances that the meder would grant me “permission to let” so soon after buying the property, if I were to give them a valid excuse such as moving in with my girlfriend etc?
There are lenders that do not require a minium income that will lend you up to 75% of the purchase price. However, as a first time buyer the most you can borrow at the moment is 70% on a buy to let mortgage.
It would be possible to apply for a resedential mortgage then apply for “permission to let”. However, not all lenders will grant this.
Please call me to discuss in more detail.
My husband and I currently own a home worth 77,000 and are having to relocate 70 miles away for a new job. Our hose is on the market and We owe 60,000 on the property, but want to know if it is possible, to enable us to move quickly, to lease our home on our existing mortgage (which is only 0.45% above the base rate!) and then get a separate mortgage on a new property and how this would work?
Any advice would be greatly received!
It will depend on your current lender. Many lenders will give you consent to let out your property. However, they may increase your rate. Once you have consent you can then get another resedential mortgage on your new home.
Interest only mortgage
I have a property which is on an interest only mortgage. This house is let.
I have had the house for 10 years and have been saving a small amount each month in a share ISA to cover the mortgage at the end of the term. I am thinking of changing to a repayment mortgage but am not sure this makes good sense as the house is only for letting and the plan is to sell it when I retire and either use the money to buy a holiday home or to have a good amount of money available for retirement years.
What would be your advice? The mortgage company have offered me the option to extend the mortgage for another five years for 20 years.
Most landlords would take interest only on a buy to let property. There are a number of factors for this. The 2 main ones are tax and cash flow. You can only offset the interest element of the mortgage againest the rental income, and there is no tax benefit for capital repayment. The second is, if you plan to sell the property, why are you putting money in to the property today, if only to take it out later on? Is the cash not better in your account to cover emergencies and void periods?
I’ve been living in my 2-bed home since I finished Uni. I’m going to move away for two years to do a Masters course elsewhere, and several friends have asked if they could rent out my house while they are still studying here. I have a very good mortgage deal, and would like to avoid paying much more if I can possibly help it (obviously).
Is it possible to still retain the house as my primary (ie. non term-time) address, and consider them lodgers? I would only be actually living there during some holidays, but does that count? I would rather let the rooms at ‘mates rates’ to my friends than rent to strangers that I don’t trust (and I do honestly trust these people – I know their mums). What are the legal and financial repercussions of doing this, as I haven’t really found any advice on this sort of situation.
Thanks for any advice you can give me.
In theory there it would be possible to do what you are suggesting, however, you should consider the following…
1. Speak to your lender to ascertain their position on the matter; they may impose commercial rates. Also check your current mortgage terms & conditions.
2. Rent can be taxed after a certain amount, as would then be classed as income. Speak to the Inland Revenue for more inforamtioln
3. You Insurance company should also be notified, as it may be invalid in event of a fire for example.
4. Who would manage the property, either yourself or an agent? Tenants will require something at some stage, and it depends if you are willing to travel between places to sort problems etc.
Fast house sale
I am currently trying to sell my house as quick as poss as i am expecting in July and want to move in with my partner to set up home properly. My house currently doesn’t seem to be shifting on the sales market and so was thinking of renting for a short while. The only problem is i need to release some equity to buy someone else out and my current mortgage company aren’t lending so i would have to remortgage to release the funds. Do i have to remortgage to a buy to let mortgage if renting or can i remortgage to an interest only / repayment mortgage and still let me property out?
You would need a buy to let mortgage if you plan to rent your property out. You can use a buy to let mortgage to increase the borrowing on your property and release equity from it. In addition you can take a buy to let mortgage on an interest only or repayment basis.
We have a fixed rate deal with the Halifax which was taken over 5 years and is not due to finish until 2012. Is there anyway we can change our rate to a lower variable rate without paying a redemption fee?
It is unlikley that the Halifax will waive your redemption fee, unless you are struggleing with the repayments and this is the only way you can repay the loan.
Consent to rent
My boyfriend and I have a property worth approx 150,000 with 139,000 owing on the mortgage. We are in a fixed rate and term deal until june 2010 but are moving 200 miles away for new jobs. We will be living with my parents and initially wanted to rent our property out with a view to sell in the next year. However, our mortgage company have said they will increase our interest rate 1% to 6.39 (£911/ month) and our rental income is only expected to be £550. They have also said that if we get ‘consent to rent’ (3.99% SVR), we cannot port the mortgage or change it in any way during our fixed term without paying the £7000 early repayment charge. Firstly, does this sound right and is it worth it? Secondly, would we be better off paying £7000 and switching to a different buy to let lender? Thirdly, would we be better off trying to sell quickly so we could potentially save more whilst living at my parents and paying the early repayment fee? Any ideas or thoughts greatly appreciated.
There are a number of factors to consider. If you do take the consent to let option it might be worth asking the lender is you can move the mortgage to interest only, this would reduce your payment. If you move to a buy to let mortgage, the most you can borrow is 75% of the property value, around £112,500. This would mean putting additional capital in to the property.
Porting the mortgage could be an option, it will depend on what product you could secure on a new mortgage. We have rates from 1.99% now, so the saving from your current 5.39% could be considerable. Please call me to discuss this in more detail.
First time buyer
I am in the postion like most first time buyers, can’t afford to save as i’m renting a flat.
My parents are spliting up. my mother wants to stay in there current house but cant aford to pay the mortgage/run the house.
I would like to move in with her and take on my fathers half of the mortgage.
Is there any mortgages out there that would help me.
A: Yes. We can do a ToE and bring him on to the mortgage. Depending on the setup of the current mortgage it may be in the client interest to stay with the current lender. However, a remortgage could also be put in place to fund the ToE. it is worth noting that Stamp Duty might be payable if the amount transferred is more than £125,000.
When I had to move location due to getting a new job I decided to rent out my house. I have a residential mortgage. I didn’t know i needed to let my lender know and i have rented it out for the last year and a alf. My lender has recently contacted me to say that they believe i am renting out the property. I have contacted them and told them i am and i didn’t know i had to let them know. They have said they will increase the morgage rate by 2% if i do not return a completed application form to them but if i do and the rental agreement meets their requirements the interest rate will only be raised by 1%.
I am no longer in a fixed term with this mortgage provider but the rate at which they are charging me is extremely high. My house is in negative equity and i cannot change mortgage providers. I make no money on the house. My tenants pay £625 and i was paying my mortgage company £688 but this will rise to £1024 if they add the 2% which will be a rate of 7.99% on a variable mortgage.
I cannot afford to pay the difference. Are they within their rights to back date the 2% interest to the time the tenants moved in a year and a half ago?
A: This will depend on the mortgage contact, but is really a question for CAB or a solicitor
I tried to sell the house some time ago but had no interest. On top of all of this i am now unemployed and using my savings to pay the mortgage difference. I cannot get any assistance from the housing authority as i am not living in the property. I cannot move back into the property as there are even less work prospects in that area than where i am now residing with family.
I tried to talk to the mortgage company about any other options etc but they were not interested in the slightest.
Any advice would be much appreciated.
A: I would apply for support with Mortgage payments from the government. Once you have been unemployed for 13 weeks you can make the application. They will pay the interest eleiment of your mortgage up to £200,000 of mortgage at a fixed rate of 6.09% (regardless of your actual pay rate).
With regard to the wider issues, I would again talk to CAB and see if they can help.
End of mortgage term
I had a buy to let property and the buy to let mortgage deal ran out right in the middle of the credit crunch when new buy to let deals didn’t exist (or if they did, they were extremely unfavourable). As I didn’t have a mortgage on my own home, I decided to part re-mortgage my home and pay off the whole of the buy to let mortgage. Now I need to do my tax return. I am wondering whether I can claim that the interest and repayments on my home mortgage (which are clearly being paid by the tenants in the buy to let property) can be used to offset the tax that I have to pay on my income from the buy to let property?
I would be grateful to hear from you.
A: Yes. You can deduct any interest payments from a resedential mortgage where funds have been used for buy to let.
Change of mortgage
I have moved home through work relocation and have taken a mortgage with the Halifax, the house I have moved from also has a mortgage with the halifax. in the current climate I looked at the option of renting the property I left for a few years until the market picks up. I approached the halifax who informad me that I would have to switch mortgages on the property I wished to rent. (this was an expensive process and DOUBLED the payment). Can they force you do do this or is there another option ? very frustrating as I have been paying two mortgages for the last two years with the Halifax and they then drop this bombshell.
Advice much appreciated.
A: They can. Unless your mortgage contact gives you permission to let the property. It might be worth considering remortgage to a buy to let deal. rates start at 3.49% and we can take interest only to keep the payments low.
I have a flat which I own outright and is empty i would like to release the equity out of it and rent it out and buy another and maybe do the same do i need to have a proof of income or with the rent be enough.I am 48 years old.
A: The rent will be enough!!!!! No proof of income is needed on most buy to let deals.
Change of mortgage?
I still have my property and would like to keep it as my parents would like to live there. Where do I stand with mortgages etc? Do I need to convert to buy to let? Or can I keep my residential mortgage? (I’m aware that I would need to amend the contents insurance.)
The terms of most buy to let mortgages do not allow tenants to be family members. In addition, as part of the lending criteria, most buy to let mortgages require a rental calculation to justify the borrowing. This would entail you having to charge a full commercial market rate to your parents if they were to live in the house. Both of these factors indicate that a buy to let mortgage may not be appropriate.
Raising money on house with lifetime tenant
My wife and her sister have inherited a house with a lifetime tenant. The tenant a lady aged about 55 years is a former girlfriend of my late brother in law.
His Will states: ‘The house to revert back to my sisters if it falls into disrepair, Miss Wilkins takes another partner, or does not use the house as her sole dwelling’.
At the time the Will was made June 1998, Miss Wilkinson was renting accommodation, however some time after this, she inherited some money from her family and purchased a three bedroomed flat. The flat has now been let.
Can you please advise if, with the purchase of the flat, the terms of the Will have changed?
What is the best method of raising cash on the house?
We would suggest you first investigate your legal options so that you know where you stand, then open the conversation with the tenant.
Renting a property that we are buying
We are in the process of buying a house. We are ready to exchange and complete immediately as we have now rented out our flat that we currently live in and the new tenant moves in next week. The people who we are buying the house from have a penalty charge for exiting their current mortgage before the first of next month but they are currently not occupying the house as they have moved to a different country. Therefore they have asked if we can exchange now and then complete on the first.
This means we will be left homeless for a while and want to find out if we could rent the property we are buying from the current owners for those couple of weeks between exchange and completion. Is this legal if we set up a short term tenancy agreement for these couple of weeks?
I own my home, no mortgage. I also own a buy to let studio, bought for £30k cash some eight years ago and now worth about £80k.
I have no experience on mortgage matters but would like to release cash from the rental property and use some of it for improvements to my own home, while putting a further £10k towards another buy to let property and also paying for improvements to first buy to let property.
My question is can claim all the interest on the loan as a tax deduction? And How easy would it be to get a buy to let mortgage for the £40k?
I have recently purchased a flat with a 100 per cent mortgage on an interest only basis for two years. I am thinking of moving in with my partner but don’t want to sell the flat at the moment. Can I rent it out? Do I need to notify the mortgage company?
Is it possible for me to purchase a three bed property on a buy to let mortgage. I would like to rent two rooms and live in the third myself?
I bought a house in the midlands last December. Now I am being made redundant and need to move to London for work. I will rent in London for maximum of three years, and then probably will move back to the house in the midlands. I asked my mortgage lender, Halifax, at the time of mortgage application if I would need to change the mortgage to rent out if I did get made redundant. The mortgage adviser told me nothing would change. Now that it’s all happening they are forcing us to end our two year fixed mortgage. They still keep us on a residential mortgage, but because we’re leasing it for some reason they have to end that and start another mortgage, which increases our interest by 1.9 per cent, and we have to pay £500 for the privilege. This means we will rent at a loss of £150 per month.
Is this usual practise? I understand the £500 fee but why should we have to change from our previously agreed mortgage? Is there anything I can do to argue this? It doesn’t seem the norm for other mortgage lenders.
I am trying to buy a single cottage which is running as a holiday let business. I intend to keep running it as a business while lodging nearby with a friend to whom I am paying rent.
If I make the cottage my principal place of residence (even though I won’t actually live there), can I get a normal residential mortgage on it and still let it out as a holiday let? I’m having trouble finding a lender for a holiday let mortgage.
We currently have a fixed rate mortgage on the property in which we live, and have just got our mortgage offer to buy a second property so we can rent out the first. The lender will only release the money once our current property is on a buy-to-let mortgage, but we can’t do this as we are on a fixed rate and will incur high charges to change.
Can they enforce this even though our current lender is happy for us to rent out?
Renting property on existing mortgage
I’m intending to rent my home for three years and rent elsewhere. Can I do this on my existing mortgage or do I need to get a buy to let mortgage? I do not intend to buy another home and I hope to return to my current house after three years. My mortgage is a base rate tracker with Skipton Building Society. I intend to change this to a fixed rate for three years before I begin renting the property.
I am finding it difficult to provide all assurances needed for a buy to let mortgage. The LTV I want is quite high and I will need to show I have sufficient income to cover any shortfall in rent. I am earning sufficient money, but as a self employed jobbing builder I am finding it hard to provide all the assurances that have been asked for. I only went into business on my own last year and do not have any annual accounts as yet, for example. I have assets in the form of our family house. Am I likely to be able to get a non-status mortgage and what are the advantages and disadvantages of this?
Switching to fixed rate
I have a number of properties. Each one has a buy to let mortgage of between 60 per cent and 70 per cent of current market value. The longest mortgage has 12 years to run, the shortest 9 years. All have been in place for over 12 months and all are currently flexible rate mortgages.
Given the current interest rate climate I am wondering whether I should consider switching to fixed rate mortgages. As far as I know there will be no penalties to pay but there ill obviously be costs involved.
Can you give be some kind of rule of thumb as to whether or not it is worth switching – for example if I think interest rates might go up by another quarter percent and stay their for a year, is there likely to be a worthwhile gain in making the change?
Fixed rates are based on the money market swaps, and therefore have potential future rate rises already priced in. There is no rule of thumb as to whether it’s worth switching as this will depend on your view of the market and your own personal circumstances.
I am worried that, having stretched myself to buy a second buy to let property at the maximum LTV, I may have trouble meeting the increased repayments now that interest rates have gone up twice in short order. One house is let on a 12 month contract with eight months still to run, but the tenants in the other property are due to leave next month.
I will be able to keep up the repayments if I have a void period of a month or so – but longer than that, and there could be problems.
How understanding will my mortgage be? Should I alret them now about possible problems? And if the worst does happen will this make it difficult to buy further buy to let properties in the future?
You mention you have enough savings for a one month void period? It may be wise to reduce your rent to ensure you get the property rented as soon as your current tenants vacate. Even if you take a hit of £50 or £100 a month your savings should buy you time to ensure you are able to get your finances back on track. Look at the local market and try and be different maybe offer a rent free period or other incentives to entice the willing tenant.
If you fall into arrears with a mortgage lender, this will affect your future borrowing capacity. Whilst you can still access sub-prime rates they are far less favourable and not recommended.
I am considering buying a property to let which is over 200 miles from where I live. Is this something mortgage lenders will take into account and if so will it make it more difficult or expensive to get a buy to let mortgage.
I am looking for 80 per cent LTV but have a good income which, along with the rent I will get, means I will easily be able to repay both the buy to let mortgage and the largish mortgage on my own home.
Lenders say they will advance so much percentage of LTV. I know this means ‘loan to value’ but when buying a property does the ‘value’ include the purchase price plus buying costs such as legal and arrangement fees? And could the ‘value’ place on a property actually be more than the buying price plus costs?
A simple illustration is an 85 per cent LTV product will allow a maximum lending of £85,000 against a property purchased at £100,000.
I have £100,000 to put down on a property that I want to buy. Its cost is £225,000. If I borrow the amount I need over five years, can you give me an indication of the likely monthly cost?
This means that of June 2007 an interest only mortgage for £125,000 (£225,000 – £100,000) would cost around £540 per month. For a repayment mortgage over five years the payments would be much higher – around £2,400 per month – although five years is considered to be a short time to repay the whole mortgage.
I am a first time buyer wishing to buy my house on a residential mortgage. However, I would then like to rent it out to a family who are friends of ours whilst continuing to live with my boyfriend in his rented accommodation. It seems mortgage lenders don’t like this sort of arrangement. Surely I am allowed one main residential property so long as I meet my financial obligations?
Would I actually be breaking any law with this plan, or is there a way around it?
Buy to let mortgage rates are now so competitive that if you intend to rent the property out there is no financial benefit in choosing a residential mortgage.
I want to purchase a property down south, but at the moment I am still working up north. Can I buy the property under a residential mortgage with the intention of moving there but rather than leave it empty let the property out until I can move there permanently without buying it under a buy to let mortgage?
I have a six bedroom student rental property which I found hard to mortgage last year as almost everyone wanted the tenants on one agreement. The house has now been deemed an HMO as it is three stories. I have been granted an HMO license but I will need to re-mortgage soon. Do you know of anyone who will grant a mortgage for a six bed student HMO with all the tenants on separate tenancy agreements?
How many tenants?
Mortgage to buy an investment property
However, will we be able to offset the interest charges against the income from the rent for tax purposes as it is not a buy to let mortgage on the investment property?
I have mortgages on two HMOs with Skipton Building Society. One property has six units (one self contained flat and five bedsits); the other has five self contained flats.
I now want to buy another HMO that has eight units (three self contained flats and five bedsits).
The problem is that Skipton has a rigid limit of six units per HMO.
Paragon will lend on a property with more than six units, but insists on three years’ experience as an HMO landlord. I shall only have one year when it’s time for me to buy the eight unit property.
There are one or two other lenders that will lend on this type of property, but their LTVs are no good to me. I need 85 per cent ideally, but 80 per cent would just about be OK.
Can you suggest a suitable lender?
Which type of mortgage
With my partner I am buying his parents’ house. It is worth £80,000 but we’re buying for £75,000 fully furnished with everything in it! The problem is before this opportunity arose we were planning on going next May to Tenerife for six to 12 months. We still want to do this.
If by some miracle we settle over there we will sell the house but realistically we will be back by May the following year. What is the best mortgage to go for? Can you rent out a property on a short term basis without having to change your mortgage to buy to let? It seems such a lot of work to do when we’ll only be travelling for 12 months tops.
Buy a partner out
I’m thinking of buying my former partner’s share of a house we both own in the Notts. As I will let the property out, this will mean changing to a buy to let mortgage. What would be the best way to go about arranging suitable finance?