Getting a Second Mortgage question

SusanC10

Asking this question for a friend who is not on Boards.

So my friend and her husband own a small house which is rented out and has a small amount of equity (probably less than 15k).

They rent another house. Landlord is putting up the Rent so they are looking to buy. They want to keep the existing house.

Husband works PAYE and Wife Stay-at-home Mum. 3 kids. However in the last 6 months Husband has set up Company and became a Director of it with his brother while remaining in his PAYE job. Will this affect Mortgage application ? Will they have to submit accounts for that company now ?

Thanks in advance.

Michael D Not Higgins

He'll definitely need more information than if he was just an employee, especially if there's any personal guaranteed loans into the new business. They usually want a couple of years of accounts so I'm not sure if they'll just reject any income outright on a new company. I wouldn't be relying on the income from the new company as part of the mortgage application.

Some things to note:
-The three kids will reduce their mortgage affordability by ~€750/month
-The existing mortgage on the rented house may reduce the affordability of the new mortgage also (especially with the same bank)
-LTI and LTV limits should be looked at compared to his base salary and current savings

SusanC10

Thanks for the quick reply. They don't want to rely on the Income from the new company on the Mortgage Application but Wife is worried that just the fact that Husband is now a Director will slow things down as there won't be Accounts ready just yet. They may also sell the Investment Property if needs be.

pwurple

A lot depends on the income levels, a large deposit will help. Bear in mind new mortgages rules about non-first time buyers. 20% deposit is required for second-time buyers anyway, but the bigger that deposit is, the less risk the bank is taking.

I've got some places with mortgages rented out, I've got my own company but had a history of income, husband is PAYE. We got another mortgage after renting but you really need to be iron-clad.We had decent deposit from selling our old place so the LTV was low.

The bank will stress test. That means you need to be able to prove you can cover the existing mortgage if the tenant stops paying, plus your new mortgage, plus feed the family if the interest rates rise.

TheShow

It really depends on how much mortage they are looking for, and how much reliance on all forms of income there is.
If the stressed repayments can be afforded on the PAYE income alone and fit within the banks metrics (Outgoings vs Income at a ratio 40/45% or less) then there shouldn't be much of an issue.
But if they are relying on the income from the company then he will need to get management accounts at least for the first 6 months, projections and confirmation from accountant as to the level of salary etc. Final accounts would not be ready yet and normally not available until c 9 mths post end of the financial year, so it would be unrealistic for a lender to request them, but probably not unheard of. As the business is a start up, the sustainability of income from that source might be an issue.
The best thing to do is to go to a mortgage broker and they should be able to give them a rough idea and what level of income verification they need to provide.

SusanC10

Thanks for the replies.

As I understand it they had been planning to buy but not just yet. They are not looking for the full LTI (but I am unsure how the Investment Property fits into this). They do not yet have the full 20% but there is a possibility of a gift from the Wife's Parents to make up this shortfall. The fact that the Landlord is increasing the rent significantly is what is driving the thoughts of a move sooner rather than later. As I understand it they had spoken to a Bank in 2015 (before this company was formed) and the only stumbling block appeared to be the lack of 20% deposit so they continued saving and they are willing to sell the Investment Property if necessary though I am unsure how much Equity that would release after Fees (Estate Agent / Legal) have been paid.

The Wife is just concerned that this new company and the lack of accounts for some time will slow matter down considerably. Apparently they would not be relying on any Income from it for the purposes of the Mortgage.

SusanC10

Thanks for the replies.

As I understand it they had been planning to buy but not just yet. They are not looking for the full LTI (but I am unsure how the Investment Property fits into this). They do not yet have the full 20% but there is a possibility of a gift from the Wife's Parents to make up this shortfall. The fact that the Landlord is increasing the rent significantly is what is driving the thoughts of a move sooner rather than later. As I understand it they had spoken to a Bank in 2015 (before this company was formed) and the only stumbling block appeared to be the lack of 20% deposit so they continued saving and they are willing to sell the Investment Property if necessary though I am unsure how much Equity that would release after Fees (Estate Agent / Legal) have been paid.

The Wife is just concerned that this new company and the lack of accounts for some time will slow matter down considerably. Apparently they would not be relying on any Income from it for the purposes of the Mortgage.

Michael D Not Higgins

SusanC10 wrote: »

They are not looking for the full LTI (but I am unsure how the Investment Property fits into this).

Without knowing the full financial details, we can't give more advice than going to see a broker. As an example, let's say their income is 75k and they're looking for a property around 300k. After a gift they can afford the 60k deposit with an LTI of 3.2, within the limits of the rules.

The mortgage repayment would be ~1100/month (30 year mortgage) stress tested to ~1400/month.

The net income is 4330/month of which underwriters will subtract 750 for the 3 kids and around 2000 for the parents, leaving 1580 as the max repayment capacity which is in the region of affordable based on the stress test. Take into account other costs or loans and that affordability goes down. It all depends on the individual circumstances.