Q My girlfriend and I got our first mortgage of £205,000 on a house in February 2015. The mortgage has a 30-year term and an interest rate of 2.3%, making our monthly repayments £790. We have made great efforts to make overpayments so that we are in a better position when we remortgage early next year.
We are looking at a remortgage of £186,000 which – assuming the house is then worth £300,000 – will mean that the LTV (loan to value) should be just over 60%. We are hoping to find a mortgage with a rate of 1%.
However, since the Brexit vote, we are keen to move to the continent. My girlfriend is French, has just finished a PhD and will be looking for work soon. I am in a secure job and it will take me a bit more time to get one abroad. Essentially, we would like to make the move next year, but there is no guarantee on timescales.
If we move, we plan to rent the house out. But as we cannot be certain about timings we were planning initially remortgage as occupiers and then notify the lender once we know when the house would actually be rented out. This would probably mean that by the time we did let the property, there would be about a year left until the next remortgage – assuming we get a two-year fixed-rate deal when we remortgage early next year.
The question is, is this reasonable or should we be looking for a buy-to-let mortgage? What rate change could we expect after notifying on an occupier rate and would this be better than a buy-to-let rate? Also, I was thinking of keeping the term on the mortgage long to maximise income on the rental to help cover for any shortfalls or repairs needed along the way. Finally, could there be issues with us living abroad? JR
A Assuming the deal is still on offer when you come to remortgage early next year, you could find one with an interest rate of 1% – or to be precise 0.99% – with the two-year fixed-rate special from HSBC. This mortgage is available to you because you want to borrow less than 65% of the value of your home and less than £500,000. But the hefty £1,499 booking fee may mean that you would be better off looking at interest rates of less than 1.5% available from other lenders.
However, as your circumstances are likely to change before the fixed-rate period is up, I would be wary of being locked into a fixed-rate deal at all. Rather than being driven by interest rates, you need to look into how a lender will treat you if you subsequently let the house. It is reasonable to remortgage with the aim of getting “consent to let” from the lender, but the consequences of this vary. Some lenders, for example, charge an administration fee and keep the interest rate the same. Others will put the interest rate up by 1%-1.5%.Most lenders will want to know that the mortgage meets the criteria of a buy-to-let mortgage even if you are not required to switch to a buy-to-let product. So they will want to know that the mortgage is no more than 75% of the value of the property and that rental income will cover the mortgage repayments by 125%. Another thing to bear in mind is that lenders rarely give consent to let within 12 months of a residential mortgage being taken out, which could be a problem if you do remortgage early next year and then move abroad shortly after.
You could also face difficulties if you move abroad before making the necessary mortgage arrangements because you’ll be classed as an ex-pat mortgage applicant. Only a few lenders – including HSBC and Skipton International – are willing to lend to UK expats living abroad. They won’t lend in certain countries, although that restriction doesn’t apply to those in the EU.