Which type of mortgage for second home?
Discussion
I am thinking about buying a house for investment purposes (haha I hear you laugh).
I have paid off the mortgage on the house I live in.
When surfing for mortgage deals, I must choose from "FTB", "BTL", "remortgage" and maybe a couple other options, none of which seem to really fit my sitation. Although I would rent it out - would be mad not to - it's not a BTL in the usual sense (or is it?) because I can afford the mortgage on it without renting it, and I have no other mortgage or loans: the rental wouldn't be paying the mortgage as with a typical BTL. The BTL mortgage rates and fees are a rip off compared to the FTB rates. What's the difference between my situation and a FTBer? I understand that the incentive to keep up repayments on a house you don't live in is less, implying a greater likelihood of default, but this risk is more than compensated for by the 60% LTV (imo). What do the lenders care that I have a house already, and why should that fact cost me a lot more to borrow? I would not use my existing house as a guarantee or anything, in fact it doesn't enter the equation at all aside from the council tax and bills as outgoings. I guess the real question is: should I just pretend to be a FTBer?
I have paid off the mortgage on the house I live in.
When surfing for mortgage deals, I must choose from "FTB", "BTL", "remortgage" and maybe a couple other options, none of which seem to really fit my sitation. Although I would rent it out - would be mad not to - it's not a BTL in the usual sense (or is it?) because I can afford the mortgage on it without renting it, and I have no other mortgage or loans: the rental wouldn't be paying the mortgage as with a typical BTL. The BTL mortgage rates and fees are a rip off compared to the FTB rates. What's the difference between my situation and a FTBer? I understand that the incentive to keep up repayments on a house you don't live in is less, implying a greater likelihood of default, but this risk is more than compensated for by the 60% LTV (imo). What do the lenders care that I have a house already, and why should that fact cost me a lot more to borrow? I would not use my existing house as a guarantee or anything, in fact it doesn't enter the equation at all aside from the council tax and bills as outgoings. I guess the real question is: should I just pretend to be a FTBer?
Simple answer to the question is you are looking for a BTL mortgage, and therefore need a buy to let product. It doesn't matter if you can afford to pay the mortgage without the rental income you still need a BTL mortgage. However you're ability to afford the mortgage and your relatively low LTV will allow you to get the better rates and fees.
I'm pretty sure you're credit history will show your old mortgage and therefore it would be obvious to any lender you're not a FTB.
The rates and fees do tend to be a little higher on BTL but I can thoroughly recommend contacting Scotal on here; he's just helped me with a BTL remortgage.
I'm pretty sure you're credit history will show your old mortgage and therefore it would be obvious to any lender you're not a FTB.
The rates and fees do tend to be a little higher on BTL but I can thoroughly recommend contacting Scotal on here; he's just helped me with a BTL remortgage.
Edited by JayBM on Thursday 28th April 09:00
If you are purchasing a property in order to rent it out - then it's a Buy to Let.
Don't forget to factor in both the Income Tax and Capital Gains Tax implications of putrchasing a second property. If necessary, take professional advice on any tax planning steps you might need to take in order to mitigate such taxes.
Don't forget to factor in both the Income Tax and Capital Gains Tax implications of putrchasing a second property. If necessary, take professional advice on any tax planning steps you might need to take in order to mitigate such taxes.
My brother has just bought a fourth property for rental purposes. He always maintained £500 on his mortgage with Nationwide BS otherwise he was completely mortgage free on the other 3 properties - one of which is his Primary Residence.
To fund this 4th property he reactivated his Nationwide mortgage against his PR. Nationwide has no real interest in why he needs this money, as it takes a charge over his PR, something I note you are hesitant to do ?? He has recently moved this mortgage to HSBC for £99, with free valuation and legal fees, at a pay rate of 2.19% (up to 60%), a product which new entrants can get at 2.39% with no fees at all.
Negotiations with HMRC have confirmed that all of his interest payments can be used to offset his rental tax liability as the loan was generated wholly and exclusively for the rental property. It doesn't matter that the loan is not set against the fourth property.
All properties are bought in his and his wife's names for future tax planning. They have also lived in 2 of their 4 properties for some time over the past 15 years.
Hope this is of some help to you
To fund this 4th property he reactivated his Nationwide mortgage against his PR. Nationwide has no real interest in why he needs this money, as it takes a charge over his PR, something I note you are hesitant to do ?? He has recently moved this mortgage to HSBC for £99, with free valuation and legal fees, at a pay rate of 2.19% (up to 60%), a product which new entrants can get at 2.39% with no fees at all.
Negotiations with HMRC have confirmed that all of his interest payments can be used to offset his rental tax liability as the loan was generated wholly and exclusively for the rental property. It doesn't matter that the loan is not set against the fourth property.
All properties are bought in his and his wife's names for future tax planning. They have also lived in 2 of their 4 properties for some time over the past 15 years.
Hope this is of some help to you
Jockman said:
Eric Mc said:
If you are purchasing a property in order to rent it out - then it's a Buy to Let.
Eric - the key point is whether Rog is willing to change his stance and use his PR to fund the project, otherwise your comment above is his only route.If he buys a property with a view to renting it to tenants - then that property is a Rental Property. The expression "Buy to Let" is a fairly newish term, probably coined by lenders to differentiate their finance products fron other types of property loans.
The OP seemed to think that a property could be rented out without it somehow being classed as a "rental property". HMRC certainly would not see it that way.
Thanks very much all for the replies, Jockman you are spot on
I've been chatting with the building soc that gave me my PR mortgage and they say the same - the best bet by far is to just remortgage my PR which will give me access to residential rates
.
Although I wanted to avoid doing this, I have no real qualms about it now that I've had time to get used to the idea. It means my paid-for home is theoretically 'at risk' again, but I am willing to take the chance that the property I buy doesn't go into negative equity given the size of the deposit I will be putting down - I'll be about 70% LTV once stamp duty (
) is factored in (plus I think it's a good deal of course otherwise I wouldn't be considering buying it).
As you say the lenders couldn't give a monkeys what you want the money for, provided it's legal
Cheers,
Rog
I've been chatting with the building soc that gave me my PR mortgage and they say the same - the best bet by far is to just remortgage my PR which will give me access to residential rates
.Although I wanted to avoid doing this, I have no real qualms about it now that I've had time to get used to the idea. It means my paid-for home is theoretically 'at risk' again, but I am willing to take the chance that the property I buy doesn't go into negative equity given the size of the deposit I will be putting down - I'll be about 70% LTV once stamp duty (
) is factored in (plus I think it's a good deal of course otherwise I wouldn't be considering buying it).As you say the lenders couldn't give a monkeys what you want the money for, provided it's legal
Cheers,
Rog
Eric Mc said:
The OP seemed to think that a property could be rented out without it somehow being classed as a "rental property". HMRC certainly would not see it that way.
I don't really mind if it's classed as a rental property for tax purposes (the tax implications are tangential to the mechanics of purchase). I have no intention of renting it out and then trying to evade any taxes due. Avoid them, maybe 
On the subject of tax due on rental income, my wife doesn't earn much (part time 5k pa), would it be a good idea to buy the property in her name? Can I just give her the cash to do this given that I am applying for the mortgage? (for the purposes of this argument you can assume we will never divorce etc etc).
PS I know I should seek financial advice and/or medical help, just interested in what the collective thinks.
Eric Mc said:
As you are married, you can give your wife as much as you like in any form of (legal) assets without there being any tax implications. However, the lenders might not be that happy to have a liability in your name secured on a property owned by someone else.
The loan would be secured on our PR, which is joint owned. tbh I don't think the lenders care what or who I spend the money on provided they have an asset as security. I'll seek professional advice on the matter. Thanks to all who have contributed for the advice, mucho appreciated.Gassing Station | Finance | Top of Page | What's New | My Stuff