Buy-to-let question

Hello Pauline,

I have a property at the moment and so does my partner, we want to buy a place together but think it’s a shame to sell either one and would like to rent out (plus our current deals are good for the next 3 years at 4.99% and we would have redemption penalties if we sold). We have been in touch with our current mortgage lenders and they are ok with us renting and are only going to charge an admin fee for a consent to let form.

We are worried about applying for a 3rd mortgage as we don’t know how the next lender would look at this. We are able to cover our mortgage payments on our existing properties once rented out and are both professionals on decent salaries too.

Question is, if we put an offer in on a house we like and then apply for the mortgage, would the lender need proof that our current homes are already rented out or is it enough that they are up for rent and we have letting agents on the case and evidence of what the agent is looking to rent them out for. If our current properties aren’t rented by the time we need to complete on the third, would this prevent the lender from lending us the money for this property? Would they insist on our current homes already having somebody in.

Does this make sense?

Kind regards,

Paul

 

Hi Paul, thanks for your email.

The concerns you’ve listed here are all important considerations.

In terms of how prospective lenders will view the fact that this will be your third mortgage, unfortunately this is difficult to predict as every lender will examine such cases differently. However, plenty of people have a mortgage on their own property in addition to those on buy-to-let properties, so in theory this shouldn’t colour a lender’s view of your application to any great extent.

Showing that you can cover the repayments on the two rental properties will be vital, as your new lender will want to ensure that you won’t need to cover the repayments for these properties out of your own pocket (thus potentially affecting your ability to make repayments on the mortgage on your home). As such, it might make your case stronger if the properties are already let when you apply for the third mortgage. However, I’m not sure how realistic this would be considering you and your partner need somewhere to live as well.

It also might be an idea to secure what’s called a Decision In Principle (DIP) on your third mortgage before you start making offers on properties. This means that the lender has agreed to loan you a specified sum subject to valuation of the property you wish to buy. That way, once you begin to make offers on homes for yourself and your partner, you will know that you have access to the funds required (as long as the property in question is up to scratch).

Another benefit of partially securing the funds in advance in this way is that you won’t lose out if a lender pulls a product before you have time to complete your application – this is happening more frequently in the current mortgage market.

Once you approach a lender to get your DIP, you can speak to them about your rental properties. As I said before, all lenders will view such cases differently, but don’t be surprised if your lender requires you to have the properties rented out before they will give you a third mortgage. They will want to ensure that you can make your repayments and all lenders are trying to reduce their exposure to risk at the moment.

Complicated cases such as this sometimes benefit from the expertise of an independent mortgage broker. Such a person should be able to give you an idea of how lenders are likely to react, given their up-to-date knowledge of current criteria and lending practices.

Hopefully this will be of some help, feel free to get back in touch if you need more information.

Kind regards,

Pauline

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