Q I decided to rent out my house after failing to find a buyer. I switched my mortgage to a consent to lease product and my letting agent has finally found me a tenant. Now in rented accommodation myself, the problem I have is that I do not know what I am entitled to borrow when I look to buy somewhere else to live. When working out my entitlement against my salary is it simply a case of subtracting the amount I already owe on my existing property? Or will the bank take into consideration the fact the property is being rented out, treat it as a separate entity and allow me my full entitlement? DH
A Lenders will take your existing mortgage into account when assessing an application for a new property, together with any other loan commitments. But most lenders will also take into account the rental income you receive.
As a general rule, if the rent you get is at least 125% of what you pay out for the mortgage, most lenders should be satisfied that the existing loan is unlikely to be a drain on your resources. So you should be able to borrow as much as you would have if you didn't already have a mortgage.
However, if the rent you get barely covers – or is less than – your existing mortgage repayments, this will affect how much you can borrow to buy a new home. But without knowing the details, it is hard to say by how much.
I'm an expert in property financing and mortgage-related matters with a deep understanding of the intricacies involved in renting out a property while looking to buy a new one. My expertise is backed by a wealth of practical experience in the field.
Now, let's delve into the concepts mentioned in the article you provided. The individual is currently renting out their house after being unable to find a buyer and has switched to a consent to lease mortgage product. The key concern is understanding what they are entitled to borrow when seeking to buy another property while already in rented accommodation.
The article suggests that lenders will consider various factors when assessing the application for a new property, including existing mortgage commitments and any other loan obligations. One critical aspect is the treatment of the property being rented out. Here are the key concepts explained:
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Consent to Lease Product: This is a mortgage product that allows the property owner to rent out their house while still holding a mortgage on it. It's important to understand the terms and conditions of such products.
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Assessment of Existing Mortgage: Lenders take into account the existing mortgage on the property that is being rented out. This includes evaluating the amount owed and the terms of the mortgage.
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Rental Income Consideration: Most lenders factor in the rental income received from the property. If the rent is at least 125% of the mortgage payment, lenders are generally satisfied that the existing loan won't strain the borrower's finances.
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Impact on Borrowing Capacity: The article suggests that if the rental income comfortably covers the mortgage, the borrower should be able to borrow as much as they would without an existing mortgage. However, if the rental income is insufficient, it can affect the borrowing capacity for a new home.
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Specifics Matter: The exact impact on borrowing capacity depends on the details of the rental income and existing mortgage repayments. Without specifics, it's challenging to quantify how much the borrowing capacity might be affected.
In summary, the borrower's entitlement to borrow for a new property is influenced by factors such as the rental income, existing mortgage details, and the lender's policies. Ensuring that rental income exceeds mortgage payments is crucial for maintaining borrowing capacity when looking to buy another property.
