Moving home to larger property / down sizing / letting to buy.
If the current mortgage is portable the lender will allow you to transfer the mortgage to new property without penalties. This is useful if the existing rate is exceptional as well subject to a penalty clause (redemption penalty). Otherwise it may be better to look for a new mortgage.
If the move involves borrowing additional funds a portable mortgage will allow the same existing rate subject to credit score and affordability.
LET TO BUY: Letting the current property whilst moving to a new home. There are several rules applying to this situation and it varies from lender to lender – see below.
Options when moving home:
Case study: Mr & Mrs Jones.
With a growing family Jones’ are looking to move from their two bedroom property to a four bedroom house with a garden.
Current property: value £230,000; mortgage £150,000 with Nationwide; rate 1.99% fixed.
New property: value £350,000.
Mr Jones salary : £32,000; Mrs Jones salary : £24,000. They have no large savings.
Maximum loan available: £280,000.
In this situation Mr & Mrs Jones decides to sell their current property and use the £80,000 profit towards the deposit for the new property. They also want to maintain their current low rate. The existing mortgage being a portable mortgage, the current lender agrees to transfer the loan to the new property without a penalty as well as lend them the shortfall at the same rate.
Rules for letting to buy:
1. Not all lenders allow let to buy property.
2. The property to be let needs to be transferred to a Buy to Let mortgage. Letting a property on a residential mortgage is not allowed. Often clients will want to let the property on an existing residential rate for obvious benefit of a low rate on a residential mortgage. A buy to let mortgage rate is usually higher than a comparable residential rate. Instead of changing to a buy to let mortgage, the new lender can often accept written confirmation from existing lender giving permission to let the property.
3. Some lenders require new purchase to be transacted at the same time, i.e. transferring existing property to a buy to let is not allowed unless the new home purchase is done at same time.
4. Rent for existing property must cover mortgage at 125% at default rate see http://www.axessonline.co.uk/buy-let/. If so the let property mortgage will be not taken in to account for affordability of the new loan.
5. Warning: Buying a property as a buy to let and moving to live in it is considered as fraud by the lenders. This is a scenario looked at by some clients when there is not sufficient income to obtain a loan to buy a larger home. Lenders regularly check to ensure that the client is not living at the buy to let house. Some lenders can put a notification on a credit file under CIFAS or fraud register, which will cause an applicant immense difficulties in future.