Tim Stone, senior mortgage consultant at Andrews Mortgage Services, says the couple needs to think carefully about the cost of keeping their current property while abroad.
We have to consider a number of points regarding the clients' future funding requirements. The equity currently tied up in the property is some £100,000 and this will hopefully increase with the mortgage balance reducing and the property increasing in value. The ideal scenario is that the current property is retained and rented out so the lender chosen will need to be flexible about the property being tenanted. They require some £30,000 to fund the move and presumably will have checked out their employment prospects abroad, especially as Mrs Smith is currrently not working. On Mr Smith's current salary of £30,000 a capital raising remortgage of £105,750 is around the 3.5 x income mark, assuming there are no other commitments, and with the loan to value being less than 60% this would not cause concern.
The couple need to consider whether the extra £30,000 is sufficient to establish themselves abroad and if they do need extra funds, whether or not the lender would be prepared to offer this facility. They also need to think about whether they might wish to purchase a property overseas at some stage, as they would obviously need a deposit for this.
Other things to keep in mind are that they need to be able to cover any void periods and whether or not the home they currently own is in a location where rental property is in demand.
My first recommendation would be to go to a lender who would not penalise them with an increased interest rate for letting out the property. Cheltenham & Gloucester is offering buy-to-let mortgages on any product in their range which is remarkable considering that, three months ago, their only buy-to-let mortgage was an offering at 5.95% standard variable rate. Capital raising would not be an issue and they would be happy to lend up to 4 x income if required.
Overpayments on their 4.49% fixed rate for two years are allowed up to 10% of the outstanding capital balance per year. Interest, however, is calculated on an annual basis which is not ideal and overdue for review. They also offer a popular two-year discounted rate off their current standard variable rate of 5.95% which is a 1.75% for two years on completion with a redemption penalty of only £90 at any stage. This is for loans of £100,000 and above. At present they have a special offer whereby the normal £199 fee is waived.
Another option would be to take out a flexible buy-to-let to raise the extra finance. The buy-to-let remortgage market is constantly changing with some lenders such as Mortgage Express Online offering a fees-free remortgage facility. The downside to a totally flexible buy-to-let is that the interest rate will invariably be higher and the clients would need to decide whether they will use all the features provided.Mr and Mrs Smith need to consider the pros and cons of keeping the existing property. Not only will they have the pressure of relocating but also the cost of a letting agent looking after the property while they are away.