I want to buy another property on a 100% mortgage.?

Question

I currently have a flat with no equity in it but no debts either that I am currently renting out. The rent doesn't cover the mortgage but most of it.... I would like to purchase a house with my partner and keep the flat would this affect the amount they lend me? If so is there a particular rule that lenders follow or is it down to your personal circumstances?

Answer 1

You need to convert the mortgage on the flat to a buy to let mortgage. Then take out a new mortgage on the new property. At 100% though, you'll very few companies willing to take you on as you are instantly regarded as a high risk.

Answer 2

I'm sure the rules of lenders are a little different in the UK, where I presume you are, but...

If you're proposing to buy a home (rather than proposing to live in the flat and buying an investment), they will probably treat it as any other home purchase. In the application process, they will want information about the current flat. They will look at your equity, which doesn't sound like that's favorable, and the income to expense ratio, which doesn't sound favorable, but you might still be able to obtain the loan if the rest of your financial picture is strong.

I would expect them to include in the new mortgage what is called a "cross default", which means if you default on the flat, that's a default on the new mortgage, too.

It's not impossible, but not having equity won't help.

Answer 3

A buy to let is one of your best options, using an interest-only motgage, but you will not get 100% that way, but your payments will be lower. Why is the rent not covering the mortgage? You should be increasing the rent to ensure it covers it.

You are likely to be able to a 100% mortgage using the usual process, because you can use the flat as equity, or you can release the equity on the flat to raise a deposit to get a interest-only mortgage.

You are in a very good position, and if I were you I would have an in-depth chat with a lending company and get them to give you advice and support.

Answer 4

This is a great way to build your personal net worth. A lot of the willingess to lend you money will be dependent on your actual debt-to-income ratio (your monthly contractual obligations over your gross earnings on a monthly basis) and the amount of equity you have in your currnet property. Given that you don't have any equity, this will be difficult. Plus, the mortgage company will usually only give you credit for 75% of the rent payment. Having two mortgages that are fully hedged will be extremely difficult to take on for any mortgage company.