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Mortgage with no income, but assets worth more than the loan. Is this possible?


steve h

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Hi - I am in the situation where I will buy a new house and may not sell my old house at the same time. In this case, I'd need to fund the new purchase without getting the funds from the purchase of my old house.

 

I do have enough capital to buy the new house outright, but this would mean cashing in all of my investments. If I cash in my investments then I'd pay a lot of capital gains tax, as I'd have to do it one tax year. If I spread this over many years then I'd hardly pay any capital gains tax.

 

A complication is that I'm now part of a growing small firm with very small income (which reduces the capital gains tax for now, but I'd still be paying most at 20%). 

 

I did wonder about getting a mortgage on the new house with no early payback penalty, for less than half the value, and then paying it off once I sell my old house. However, I'm not sure that this is possible as it seems like all mortgages are based purely on income. 

 

Does anyone know if I have any mortgage options here (ie mortgages based on ability to pay and not on income)?

 

Thanks is advance!

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7 minutes ago, richard_pia said:

Have you considered a bridging loan?

To be honest, the cost of doing that probably means that it's not worth it given the higher costs and interest rates. 

 

If I could get "normal" mortgage rates then it would make good sense, especially as I'd only ever use the introductory low interest rates (they seem to often fix them until 2020, but I would pay the mortgage off within months).

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If old house is unencumbered, you could do a let to buy? Simply take a bit to let remortgage your current house to buy the new one. Some BTL lenders will allow interest only without minimum income requirements

 

You would be restricted to 75%-80% loan to value. 

 

The problem comes when you try to get a mortgage on onward purchase, it’s what mortgage you can get with the small income.  You could use investment income but this is dependent upon the strength of those investments. 

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2 minutes ago, John Carey-Shields said:

If old house is unencumbered, you could do a let to buy? Simply take a bit to let remortgage your current house to buy the new one. Some BTL lenders will allow interest only without minimum income requirements

 

You would be restricted to 75%-80% loan to value. 

 

The problem comes when you try to get a mortgage on onward purchase, it’s what mortgage you can get with the small income.  You could use investment income but this is dependent upon the strength of those investments. 

 

Thanks - at the moment I have no mortgage at all and I was thinking that the mortgage would be on the new house. I would move in soon and there would be a delay before selling my old house (assuming I can't tie together the sales, in which case I wouldn't want a mortgage). Are you saying that somehow I say that I will look to rent the old house then something may work? It will only be a short window so I wouldn't actually ever rent it.

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Actually, there may be one thing that I didn't think about. 

 

As far as CGT goes I think there is a 30 day rule, so if you sell units and then buy them back there is no capital gain and you are treated as if you never sold the units (otherwise you could keep doing this and re-set the starting point). If this is true then if there is a <30 day gap between me cashing in units and getting proceeds from the sale of my old house then it may work - but such a small gap seems unlikely. 

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Steve, if you decided to rent the old house then you could get a mortgage on it - just a 2 year deal perhaps.  The only costs you would then incur would be early repayment penalties if you came out of the mortgage within the product term, however this still gives you the flexibility, will save on the cost of an expensive bridging loan and would mean that you wouldn't have to cash in your investments and risk CGT.  You may decide to retain your existing home and let it out anyway, in which case you will need to go down this route.  

 

You would need to obtain a rental appraisal from a local agent who will be able to give you the current market value for rental and give you an estimated rent figure per calendar month.  If you can obtain an ARLA letter, this will also help as a lender may ask to see this.

 

There are some lenders who will look at a BTL mortgage with limited incomes but this would involve a full conveyance of the property which would take the most time - a free solicitor from the lender could take care of this.  Typically you could get a mortgage offer within a week or two.  You would fall under consumer buy to let lending as you are remortgageing a property you have formerly lived in on to a buy to let product. 

 

Inbox me if you have any further questions. 

 

 

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Thanks John, I didn't consider any of that and it's given me something to think about.

 

With so much to think about with the move, I'm not sure I can stomach actually renting out my old house but it may be an option. 

 

My old house has an open day in less than two weeks so I'll know more after that. If I can get someone buying with no chain who can act quickly then I may be OK anyway, but if all serious offers are part of a chain or I cannot get what I think I could get if I leave it in the market for a bit longer than I'll need to cough up the CGT or do something like what you say.

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  • 4 months later...
On 8/21/2018 at 11:36 AM, steve h said:

Thanks John, I didn't consider any of that and it's given me something to think about.

 

With so much to think about with the move, I'm not sure I can stomach actually renting out my old house but it may be an option. 

 

My old house has an open day in less than two weeks so I'll know more after that. If I can get someone buying with no chain who can act quickly then I may be OK anyway, but if all serious offers are part of a chain or I cannot get what I think I could get if I leave it in the market for a bit longer than I'll need to cough up the CGT or do something like what you say.

 

Hi Steve,

 

How did your situation play out in the end?

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