Is two mortgages a problem? do-able?

[Jumpy Guy]

I'm looking at buying a new property, and the current market would make selling my existing property a less attractive option.

So, outline plan would be to rent out the current property, and get a new mortgage for the new property.

Potential rental income is 100% of the current mortgage on the existing property.

My IFA has indicated that this is a real problem....

Is that true?

[mcflurry]

Can you pay both mortgages if the house isn't let?
Do you have a sizable deposit / equity?
Can your salary multiple cover it?

[Jobbo]

Jumpy Guy said:

Potential rental income is 100% of the current mortgage on the existing property.

My IFA has indicated that this is a real problem....

Is that true?

Hmm, void periods, maintenance, actual v. potential, rates going up... and in the best case with base rates at 0.5%, it just covers your outgoings. While everyone waits for a property price crash.

Whether or not it's true from a mortgage lending criteria point of view (and I would suggest the IFA is correct), is it a good idea?

[scotal]

Jumpy Guy said:

I'm looking at buying a new property, and the current market would make selling my existing property a less attractive option.

So, outline plan would be to rent out the current property, and get a new mortgage for the new property.

Potential rental income is 100% of the current mortgage on the existing property.

My IFA has indicated that this is a real problem....

Is that true?

That depends entirely on who your current mortgage lender is.
It also depends on whether your mortgage is repayment, or i/o/

[Jumpy Guy]

Current mortgage is repayment. I understood that as long as the rental income was 125% of i/o, then it wouldnt be considered when arranging a new mortgage?

[scotal]

Jumpy Guy said:

Current mortgage is repayment. I understood that as long as the rental income was 125% of i/o, then it wouldnt be considered when arranging a new mortgage?

Depends. If you are keeping your current mortgage, then you will need permission to let.
If you are taking out a new BTL loan, then the mortgage will be ignored, assuming it is self financing.

[Jobbo]

Jumpy Guy said:

Current mortgage is repayment. I understood that as long as the rental income was 125% of i/o, then it wouldnt be considered when arranging a new mortgage?

Two things here:
(1) your current mortgage isn't i/o and therefore the rent doesn't cover 125% of your payments; it may be that your lender wouldn't let you move it to i/o.
(2) remember that the rent cannot be offset against capital repayments for tax purposes, only interest payments so do you really have 100% coverage?

[Jumpy Guy]

hmm

On point 1, I understood that you had to have 125% of the interest portion of your mortgage, which I have?
i.e. 100% of a repayment mortgage > 125% of the interest on the mortgage

[scotal]

Jobbo said:

(2) remember that the rent cannot be offset against capital repayments for tax purposes, only interest payments so do you really have 100% coverage?

The lenders don't look at it as a nett figure after deductions, they simply look at it as a gross figure against the monthly payment.

[Jobbo]

If you had an existing I/O mortgage, then that would all be simple, but you don't; you have an additional contractual commitment to pay down capital.

[Jumpy Guy]

Jobbo,

I think I'm missing something. The rental income covers both the interest and the capital part of the mortgage.

If there was ever a shortfall in rental, then I have funds to cover this for a reasonable period.

My point was, I understood that if the rental income covered 125% of the interest part of the mortgage, then it was ignored.

[Jobbo]

My understanding is that the rent covering 125% of your I/O mortgage payment is (as a rule of thumb) the criterion. However, my point is that you don't have an I/O mortgage; you have a greater commitment than that.

Scotal, my point (2) wasn't about the lender's criteria, it was relevant to the OP's own calcs.

[scotal]

Jumpy Guy said:

My point was, I understood that if the rental income covered 125% of the interest part of the mortgage, then it was ignored.

Again, depends on the lender. Some will ignore the second mortgage irrespective of rental cover provided you have PTL, others will want to do the sums.

[anonymous-user]

the loan to value calculation - on the existing property and the new one too - will be a significant factor. Significant in that if its too high the deal won't happen and in that the lower it is, the lower the interest rates available to you could be.