Moving home can be a hectic and often stressful experience. With so much to think about, one of the biggest questions is whether you have to sell your current property or not. Perhaps you want to move somewhere else while keeping the family home as an investment – is this possible? The answer isn’t always clear-cut, especially when there are so many different dynamics at play – location, financial and lifestyle choices may all factor into deciding what is best for you. In this article we will explain the mechanics of keeping your current home, helping you make an informed decision about what’s right for you without having to worry about if it will work out financially or logistically.
Are you tied in with your current lender?
If you are tied into a fixed rate for another year or so then you firstly need to establish if you can take your current deal to another property – this is known as ‘porting your mortgage’. The majority of lenders allow porting, and it is generally fine when you are selling your current home. However, porting when you are looking to hang onto your property for investment may be problematic as not all lenders will support you with this.
What happens to my existing mortgage?
If you have already decided that you would like to hang onto your home, you will need to clear your existing mortgage. In this instance, you may be in a position to re-mortgage onto a Buy to Let (BTL) mortgage. Although known as a BTL mortgage the process of re-mortgaging your current home in order to purchase a new property to reside in is actually referred to as ‘Let to Buy’ (LTB), so to ‘let out your current property in order to buy your next home’. It's important to consider that not all lenders currently support Let to Buy Mortgages.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Can I borrow additional funds with a Let To Buy Mortgage?
When it comes to organising a Let to Buy (LTB) remortgage, just like a buy to let mortgage there are limits on how much you can borrow. The key factor in this process is the projected rental income from your current property. Do you have a good idea of how much your property can generate each month? Before making any decisions, it's wise to consult with local estate or letting agents to determine this figure.
If you're thinking about raising additional funds through a LTB remortgage it is worth remembering that selling your current home will give you greater buying power for your next property, as you're likely to have more money available for your deposit.
Will keeping my current property restrict what I can borrow for my next home?
Generally speaking, no, as most lenders will ignore a BTL mortgage providing the proposed rental income covers the new mortgage payment. Whether you are keeping your property or not, lenders typically offer you the same amount for your next home. In fact, you may be in a position to include your proposed rental income as part the affordability assessment for your next home, so you may in fact be able to borrow a little more than if you sold your home.
A few helpful facts about BTL mortgages:
Interest rates and fees are typically higher than those offered for a residential mortgage
They are more complex so seeking mortgage advice is recommended, including advice from a specialist tax adviser or accountant too
Although not always limited to, the majority of lenders restrict the loan to 75% of the property’s value, known as Loan to Value (LTV)
Although 75% LTV is typically what most lenders can offer, this will be very much dependent on the amount of rental income paid each month
If you are looking to move without selling your home you will also need to consider Stamp Duty, where you will incur an additional 3% when purchasing a second home.
How much can I borrow with a LTB / BTL mortgage?
There are various reasons why Let To Buy may prove difficult, with the most common stumbling blocks being either the lack of equity in your current property or the rental income just not meeting the lenders Interest Coverage Ratio (ICR) calculations. An example of how a lenders ICR may look would be as follows:
Mortgage Amount x 7% (could be the lenders pay rate plus 2%) x 145%
Example:
£200,000 x 6.5% = £13,000 annual mortgage interest x 125%* = £16,250 Annual Rent Requirement (£1354 each month)
*some lenders may adopt a higher rate of 145%, depending on your tax status / borrowing requirements
Looking for more information? Check out our other articles on How Do Buy to Let Mortgages Work and Is Limited Company Buy to Let Right For Me.
As you can see securing a BTL / LTB mortgage can prove challenging, then add your new residential mortgage into the equation and you are left with plenty to think about! An experienced mortgage broker will very quickly provide you with a thorough understanding of your options and whether keeping your current home is achievable when moving on.
Ready to discuss further? Contact us today.
Your home may be repossessed if you do not keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Not all Buy to Let Mortgages are regulated by the Financial Conduct Authority
Published by Beechwood Mortgages Ref: 219335 with review and approval from Stonebridge Mortgage Solutions Limited who is authorised and regulated by the Financial Conduct Authority Ref: 454811.