Reply to: Contractor mortgages and stuff

[Freelancer Financials]

Cheers. Bit confused about whether its just Halifax or all lenders who will ignore commitment if you get consent to let.

I guess the killer here though is if current lender will give consent to let. Any idea what First Active (now RBS) are like for this?

Scary amount to be able to get though methinks. Buy a street here for that :-)

RBS is normally fine providing "Consent To Let" but lenders are beginning to tighten this as many home movers are choosing to Rent their existing properties rather than selling them. Consent to Let was intended to help people who want to move properties and haven't yet got a buyer for their existing home. So rent it until they can sell. It's not intended to replace a Buy to Let mortgage.

However, many people get away with staying on a "consent to let" because 90% of lenders do not police or follow-up after consent is giving.

The reasons why a lender will not give consent to let are:

1. They believe you have no intention to sell the property in the future and suspect you are just trying to avoid paying a higher rate on a BTL mortgage.
2. The property you are buying is just round the corner and it's obvious you want to keep the existing house as an investment property.
3. The rental assessment is such that the rental income doesn't cover the mortgage cost

Reason's they will give consent to let:

1. Job relocation, need to move property because you are moving to be closer to your new job
2. Plan to sell your home within 12 to 24 months of moving to a new property.

However, each lender has different criteria and person is assessed on their particular set of circumstances.

[northernladuk]

I did the same a couple of years ago, asked the lender for a consent to let ( they still haven't got back to me) and bought a house closer to work.

I kept the heavy mortgage on the old house not the new one, this is because one can set off the mortgage interest payments against the rental income, hence I do not need to pay any tax on the rental income (which just about pays for the mortgage anyway)

But now my fixed period will be completed in a few months and I would need to go on variable rate so I may need to change the mortgage a bit and see the best offer.

It's up to you to get the consent to let, not them. If you are letting your house without consent you could get in to a lot of trouble. Firstly for the fact that any new mortgage provider may ask for evidence of the consent and secondly you could get in to trouble with the actual mortgage provider for not making sure they know. Bad idea to let against a residential mortgage without the correct agreement. It could be against the terms of the mortgage which would give them a right to pull it.

You can only claim the interest of the mortgage which can't be the value of the rental income so leave some tax to pay surely?

[northernladuk]

RBS are bloody great. I mentioned it tentatively when I applied for my mortgage last week and the woman told me just to request a consent to let form (which takes a week for some odd reason) and pay £200. No questions.

[SandyD]

I did the same a couple of years ago, asked the lender for a consent to let ( they still haven't got back to me) and bought a house closer to work.

I kept the heavy mortgage on the old house not the new one, this is because one can set off the mortgage interest payments against the rental income, hence I do not need to pay any tax on the rental income (which just about pays for the mortgage anyway)

But now my fixed period will be completed in a few months and I would need to go on variable rate so I may need to change the mortgage a bit and see the best offer.

[psychocandy]

John Yerou, Freelancer Financials: For future reference Halifax will assess all self employed people using one years accounts, it will be based on salary and dividends. Woolwich currently assess contractors using only one years accounts too.

And if your an IT Contractor, we have lenders that will assess you with less than one years trading history, using your contract rate.

Almost two years now. Current lender (RBS) told me to come back after two years when I asked them for additional borrowing last year. :-(

[psychocandy]

If you get "consent to let" from your existing lender, then the new lender will ignore that commitment. And you will be able to use the full £200K borrowing for the new property. Halifax, is the only lender that will ignore properties in the background, unless it is with them or in the Lloyds/TSB Group. If you have a residential property and want to let it out, officially you should seek permission from the lender otherwise you're in breech of your mortgage contract.

Let’s assume we use your contract rate to assess your affordability: This allows you to borrow substantially more than if you were being assessed using accounts. In order to calculate how much you can potentially borrow, multiply your current contract rate by the number of days contracted to work in a week and then by 46 weeks in a year. We can generally secure a mortgage of around 4.25 times this total. Therefore, a contractor on £300 per day could potentially borrow £293,250.

It also depends on your occupation, IT Contractors are assessed on 48 weeks and a multiple of 4.5, therefore a IT Contractor on £500/day can potentially borrow £500 x 5 x 48 x 4.5 = £540,000.

If you want more advice, you can always contact me at Freelancer Financials.

Cheers. Bit confused about whether its just Halifax or all lenders who will ignore commitment if you get consent to let.

I guess the killer here though is if current lender will give consent to let. Any idea what First Active (now RBS) are like for this?

Scary amount to be able to get though methinks. Buy a street here for that :-)

[Freelancer Financials]

Does depend on the lender, my wife had no problem getting consent to let from Northern Rock a few years ago on her flat. I however have a mortgage with C&G and they would not consider it, and would need to switch to a BTL mortgage.

I'm a contractor so can afford to have a spare house in Devon.

Had to wait til I had 2 years of accounts before the major high street lenders would consider me.
Not hard to get a mortgage, just hard to get a reasonable rate.

GL in your search.

P.S. I have a LARGE 4 bed victorian house in Tottenham and that was just sub 400k. Finsbury Park on the other hand 3 bed basement flat, 400k.

Location Location Location as they say.

John Yerou, Freelancer Financials: For future reference Halifax will assess all self employed people using one years accounts, it will be based on salary and dividends. Woolwich currently assess contractors using only one years accounts too.

And if your an IT Contractor, we have lenders that will assess you with less than one years trading history, using your contract rate.

[Freelancer Financials]

Hi John,

Not sorted yet. Assuming I could keep existing mortgage as planned, wouldn't any additional borrowing still be limited to what the income multiples decide?

I.e. If I currently borrow £100K and my salary/contract dictates I can borrow £200K max, then my 2nd mortgage can only be for £100K?

If you get "consent to let" from your existing lender, then the new lender will ignore that commitment. And you will be able to use the full £200K borrowing for the new property. Halifax, is the only lender that will ignore properties in the background, unless it is with them or in the Lloyds/TSB Group. If you have a residential property and want to let it out, officially you should seek permission from the lender otherwise you're in breech of your mortgage contract.

Let’s assume we use your contract rate to assess your affordability: This allows you to borrow substantially more than if you were being assessed using accounts. In order to calculate how much you can potentially borrow, multiply your current contract rate by the number of days contracted to work in a week and then by 46 weeks in a year. We can generally secure a mortgage of around 4.25 times this total. Therefore, a contractor on £300 per day could potentially borrow £293,250.

It also depends on your occupation, IT Contractors are assessed on 48 weeks and a multiple of 4.5, therefore a IT Contractor on £500/day can potentially borrow £500 x 5 x 48 x 4.5 = £540,000.

If you want more advice, you can always contact me at Freelancer Financials.

[d000hg]

Have never tried to get a mortgage as a contractor but well aware that its not so easy from traditional lenders anyway.

Not true according to our advisor. If you can show consistent earnings they'll take your money, especially if your wife has a permie income?

Current mortgage outstanding - about £130K. Wife wants to move, buy a new house, but keep the old one and rent it out. In effect, get a new mortgage for the new house.

Not even sure if I can get a mortgage for 2 houses. (Although, I am in Wales - 5 bed detached for under £400K - sorry for all you lot in the south east).

But, is the original lender even going to allow this? I always thought you had to get a buy-to-let mortgage if you were going to do this?

We have a similar situation. Basically we're told the lender wants to be able to ignore the old property i.e. be happy it doesn't affect your ability to pay for the one you're buying. If it is already let for example. Or maybe if you can get an official letter from the agent saying what they can let it for.

You do not necessarily need to get a BTL mortgage to let your existing home, many lenders will give you permission on the current mortgage, maybe with an annual fee. Ours let us keep our 1.15% deal which was wonderful So I wold personally not want to get a new BTL, but sort out letting your home and buy a new one. Timing could be the issue though, a bit of a chicken-and-egg situation. We left our house and rented, so we don't have the issue.

[psychocandy]

John Yerou, Freelancer Financials. How are you getting on with the mortgage? Have you decided on what route to take.

The correct way to do it is contact your existing lender to get 'consent to let' on your existing home, most high street lenders will allow this. For the new property, you have a number of different options. You can apply for a contractor mortgage through a contractor mortgage specialists like ourselves. But equally, you can be assessed on 2 years accounts if your accounts provide sufficient income for the amount you wish to borrow. There are a number of high street lenders that will also take retained profits into account.

A contractor mortgage is based on your contract rate, no accounts, SA302, tax returns required. A copy of your contract along with bank statements is used to certify your affordability.

I hope this helps.

John Yerou

Hi John,

Not sorted yet. Assuming I could keep existing mortgage as planned, wouldn't any additional borrowing still be limited to what the income multiples decide?

I.e. If I currently borrow £100K and my salary/contract dictates I can borrow £200K max, then my 2nd mortgage can only be for £100K?

[Scrag Meister]

Does depend on the lender, my wife had no problem getting consent to let from Northern Rock a few years ago on her flat. I however have a mortgage with C&G and they would not consider it, and would need to switch to a BTL mortgage.

I'm a contractor so can afford to have a spare house in Devon.

Had to wait til I had 2 years of accounts before the major high street lenders would consider me.
Not hard to get a mortgage, just hard to get a reasonable rate.

GL in your search.

P.S. I have a LARGE 4 bed victorian house in Tottenham and that was just sub 400k. Finsbury Park on the other hand 3 bed basement flat, 400k.

Location Location Location as they say.

[Freelancer Financials]

John Yerou, Freelancer Financials. How are you getting on with the mortgage? Have you decided on what route to take.

The correct way to do it is contact your existing lender to get 'consent to let' on your existing home, most high street lenders will allow this. For the new property, you have a number of different options. You can apply for a contractor mortgage through a contractor mortgage specialists like ourselves. But equally, you can be assessed on 2 years accounts if your accounts provide sufficient income for the amount you wish to borrow. There are a number of high street lenders that will also take retained profits into account.

A contractor mortgage is based on your contract rate, no accounts, SA302, tax returns required. A copy of your contract along with bank statements is used to certify your affordability.

I hope this helps.

John Yerou

Have never tried to get a mortgage as a contractor but well aware that its not so easy from traditional lenders anyway. But wifes got an idea in her head which I'm not sure will work for a normal permie!

Current mortgage outstanding - about £130K. Wife wants to move, buy a new house, but keep the old one and rent it out. In effect, get a new mortgage for the new house.

Not even sure if I can get a mortgage for 2 houses. (Although, I am in Wales - 5 bed detached for under £400K - sorry for all you lot in the south east).

But, is the original lender even going to allow this? I always thought you had to get a buy-to-let mortgage if you were going to do this?

Or could you port exiting mortgage to new house, add a bit on and then get buy-to-let for the old one?

[barrydidit]

The trouble with specific BTL products is they're priced higher to reflect additional risk. There isn't really any additional risk from your point of view since your name is on the documentation just the same as it always was.
It would be preferable if you could:
1. Talk to your existing lender and find out whether they will give their 'consent to lease' under the existing T&C's.
2. Some T&C's will permit you to re-drawdown up to the original loan amount. Note, not 'some lenders' but 'some T&C's' - there will be multiple versions in force at any particular time so you will need to read yours carefully.
3. If you can re-drawdown or even remortgage to remove equity from Property A this might be a good source of additional deposit for Property B since it will reduce the LTV on Property B giving you access to better rates, and additionally will increase your loan costs for Property A when you come to complete your tax return.
4. re loan costs, it's only the interest which is an allowable expense, not the capital repayment so it makes further sense (tax-wise) to shift Property A to an interest only loan, and use any saving to pay down additional capital on Property B

You'll pay less tax by reducing the LTV on Property B at the expense of Property A, but you'll need to determine based on the rates whether this is a false economy or not.

Of course, you might find a decent BTL rate out there..... but in my experience the above would be an ideal solution.

HTH

[psychocandy]

I still think it is a good idea for the long term for a little extra when we retire but 4 bed is too much for us now. We don't want top rates on mortgages anymore and worrying about 2 big mortgages if the BTL is empty for 2 to 3 months (or more) a time. It has to be something that isn't going to cause sleepless nights and skint us should it not work. Something smaller and spread the investing around just in case is going to be our preferred solution. Sometimes with houses you just gotta cut and run.

3 hours to get to work after a 4 car shunt on the M60 this morning.. Nothing happy about the new year so far but HNY to you as well.

Yep. Im more wary these days about taking on more financial responsibilities and hassle.

Took me almost 15 mins to get here this am - 9 miles. Could be worse - you could have been part of the 4 car shunt!

[northernladuk]

Yeh. This is what I assumed might happen.

In the lucky position that got tons of equity at the moment but if we 'upgraded' it might not be so cool. LTV is the thing these days as well like you said.

Im not sure about the rent idea also but Mrs is keen for some reason. Not convinced that property and renting out is a good idea at the moment. Also, like you, 4 bed detached is what we got.

Happy new year BTW.

I still think it is a good idea for the long term for a little extra when we retire but 4 bed is too much for us now. We don't want top rates on mortgages anymore and worrying about 2 big mortgages if the BTL is empty for 2 to 3 months (or more) a time. It has to be something that isn't going to cause sleepless nights and skint us should it not work. Something smaller and spread the investing around just in case is going to be our preferred solution. Sometimes with houses you just gotta cut and run.

3 hours to get to work after a 4 car shunt on the M60 this morning.. Nothing happy about the new year so far but HNY to you as well.