Question
I have a question about buy to let I have a joint mortgage – there are two of us. I live in Canada and do not live in the property and my friend mentioned in the deal lives in the property with her partner who pays the “rent” for half of my mortgage.
We need to remortgage as our current deal expires. I hope you have some advice/help with this process?
Darren’s answer
On the buy-to-let (BTL) side, if the property is your friend’s primary residence, lenders will usually still treat this as a residential mortgage.
Payments from your friend’s partner are usually seen as a contribution to household costs, rather than formal rental income. It is important to check with your current lender to see if this is a formal buy-to-let arrangement.
Generally, lenders will ask you to provide some documents, such as proof of your overseas address, bank statements and proof of income.
Also note that credit checks may be more limited as UK credit ratings still apply to mortgages.
There are two main options you should consider once you know whether this is a buy-to-let or residential mortgage.
1. Remortgage to a new lender
A mortgage broker can search the market based on the outstanding mortgage balance and the value of the property to see what rates are available to you.
This will be a new mortgage application which can incur legal costs and other preparation fees (your broker can guarantee free legal proceedings and a free valuation with some lenders). Some lenders also offer cashback deals for remortgage situations.
There will be a credit scoring application and a full assessment of income/expenses. This will also take into account your overseas situation.
2. Switch to a new rate with your current lender
This is classified as price switching or product shifting.
The benefits of this are that there is rarely a credit score check or requirement to provide proof of income, as the lender has already assumed the risk for your existing mortgage.
An appraisal will not be needed either because the lender will have their own internal appraisal of the property. This may mean that the loan-to-value ratio is positively influenced by the lender’s valuation, rather than the market value.
A point to take into consideration…
One thing you should consider, if this is a buy-to-let mortgage, is that HMRC may view the payments covering your share of the mortgage as rental income.
As a non-UK resident, you may fall under the non-resident landlord scheme, and I would advise you to seek advice from a UK tax advisor.
It would be helpful to talk to a broker who can provide an assessment of your options and give you the best rates on the market for your circumstances. A mortgage broker will have access to your lender’s deals as well as deals in the market to get you the best mortgage possible.
