Client Buying A New Property And Letting Out Existing Home To Avoid Ercs

The client:

Our client wanted to buy a new property while keeping hold of his existing home and renting it out, mainly to avoid paying £10,000 in early redemption charges to get out of his fixed-rate mortgage early. We explored two options – the first was consent-to-let for the first property and a straight forward purchase of his new home. The second option was to port the existing mortgage to the new property and increase it at the same time so that it covered both homes. We decided on the first option – consent-to-let and then purchase as it was the cheaper and most convenient solution. As consent-to-let was on a repayment basis, we needed a lender who would agree to part interest only/part repayment on the purchase in order to minimise the monthly repayments. To fit the lender’s criteria, the client also had to increase his deposit by £25,000, enabling him to borrow the amount required.

Key requirements:-

• A lender prepared to agree to consent-to-let of the client’s existing property, as well as agreeing to lend the full £800,000 to enable the client to buy his new home.
• A lender prepared to allow the purchase on a part interest only/part repayment basis in order to keep the monthly payments at an acceptable level to the client.
• A lender willing to add the arrangement fee to the loan.

After sourcing the mortgage market, we identified a lender who agreed to lend almost the full amount required (the client needed to increase his deposit by £25,000 to meet the lender’s criteria) on a part interest-only/part repayment basis.

The application process:
To support the mortgage application, the client provided details of his income, likely rental income from his existing property, and evidence of his identity. We were delighted to inform him that a lender had issued a formal offer for the full amount requested.

• Property purchase value: £1.1m
• Loan amount: £800,000
• LTV: 75%
• Rate: 4.33% (0.33% above base rate) for two years
• Lender product fee: £999 added to the loan
• Monthly payment: £3,797