Existing Mortgage Penalties
Want To Move Home But Have Hefty Penalties On Your Existing Mortgage?
Our client needed advice about purchasing a new property for his main residence. His existing property was mortgaged but was tied in with a hefty redemption penalty, our client wanted to let out his existing residence to a tenant which would allow him to move into the new property so therefore the new purchase being arranged as a let to buy.
How it's done...
Because our client needed to raise money for the deposit for the new purchase it meant we would have to raise a second charge against his existing property as a remortgage to a buy to let mortgage would be too costly to arrange by redeeming the existing loan and paying the redemption penalty.
Our client runs his own business but his last audited accounts were only available up until the previous tax year and not the most current one. The last audited accounts did not reflect the most recent company profits and therefore our client requested to self certify his income. The income that he declared was sufficient to achieve the desired mortgage level he required plus he had an accountant that was willing to certify current trading levels should the chosen lender need to contact them.
After quoting various lenders our client preferred to go with a well known reputable lender (Bank of Scotland) on a two year fixed deal with an overpayment facility. We then applied for a decision in principle with Bank of Scotland which he passed fine, we then continued to complete & submit the full on line application to the lender who then instructed the survey. The lender did indeed need to contact our client's accountant to perform an affordability check to confirm our client could service the loan.
The client's financial situation was £100,000 outstanding on the mortgage, £30k on credit cards and £10k on a personal loan - they are struggling to maintain all the monthly payments - especially the credit cards - they have no adverse credit but advised us that they needed to move quickly before they fell into any financial difficulties.
The check with the accountant was fine and soon after the mortgage went to offer which showed our clients existing mortgage being ignored as a commitment as the lender was satisfied that the rental income would cover this mortgage payment.
Was our client happy?
Our client was over the moon with the advice we gave him - not only did he complete on the purchase of his new dream house he was able to keep his existing property without being penalised by £1000's of pounds in redemption penalties.
The clients second charge did come with a slightly higher interest rate but this was still so much cheaper then paying the redemption penalty. And of course, when our clients existing mortgage is free of any redemption penalty we will re finance him to a better rate and clear the second charge at the same time!
