Landlord remortgages home & adjacent rental flat

Landlord remortgages home & adjacent rental flat

22.02.17 | Written by: Andy McOwat

We were approached by an experienced landlord who needed help in refinancing his home to raise £30k to use as a deposit on the purchase of another buy to let property. The landlord’s home, which he owns outright on a freehold basis, is a ground floor, 2-bed “Tyneside” flat.

On the face of it, the case should be straightforward; the client has a successful portfolio, a strong income and owns his own home. However, he also owns the Tyneside flat upstairs (with a buy to let mortgage) on a leasehold basis which he rents out, and the freehold of the building.

Many lenders will not lend where the borrower owns an “adjacent” property and the ownership structure of the building is complex. This is because the client could potentially knock through to make one, larger property which would be quite a problem if the lender were ever to have to repossess the flat, only to discover it was now a house! Further, untangling the ensuing freehold/leasehold arrangement could potentially be a very time-consuming and quite costly exercise.

To avoid this application becoming a problem we suggested it might be easier to get funding if the client also remortgaged the flat upstairs with a lender that could provide finance on both, and crucially, would accept adjacent properties. The client agreed, and so we approached a suitable lender.

The client chose two year fixed rates for both mortgages, so that they can be reviewed together each time the initial period expires. On the advice of his accountant, he opted to retain personal ownership of the rental property.

After clarification from the client’s solicitor confirming the leasehold/freehold arrangement, the lender offered the following terms:

Downstairs flat (client’s home) value: £140,000

Loan amount: £30,000

LTV: 22%

Rate: 1.35% 2 year fixed residential mortgage

Term: 15 years, capital & interest

Lender arrangement fee: £999

Mortgage payment: £190 pcm

 

Upstairs flat (client’s BTL) value: £135,000

Loan amount: £90,000

LTV: 67%

Rate: 2.89% 2 year fixed buy to let remortgage with free valuation & £400 cash back

Rent to Interest: 145% @ 5.5%

Borrower: Individual

Term: 23 years, capital & interest

Lender arrangement fee: £999

Mortgage payment: £447 pcm

Rent: £600 pcm

Gross yield: 5.3% pa

Consultant: Andy McOwat, 01625 416 396

 

*Tyneside flats are pairs of single-storey flats within a two-storey building. Their distinctive feature is that each flat has a separate front door access onto the street, with no communal hallway.

ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.