Will banks take in potentia rental income from part of a new family home in mortgage?

ElKavo

As the catchy title suggests, we are looking at selling a property we have. It was in NE for many years but has been rented out for 4 of them. Now the property would sell for above the outstanding mortgage (tracker ECB +.95%). We are with Ulster bank and I know that they offer a switcher mortgage with the ability to keep the tracker (now ECB + 2%) type so thats great.

One of the properties we are looking at is a 2 storey over basement with separate entrance to basement. We would like to rent this area out as a 2 bed apartment as it is configured as such. The potential rental in the area (lower end) is €800 PM typically a 2 bed would rent from 1000 - 1200 PM for 9 months of the year and during peak season could reach 3k PM. I again would only think it prudent to use a lower end of €1500 for this 3 month period. We will have the 20% deposit for the new property + some to modernize the apartment. By my rough calculations the mortgage on the remaining mortgage would be 1000 - 1200 PM.

In an ideal world we could see the rental income covering the almost 3/4 of the mortgage. We would have expenses etc to write off the tax due for the first 8 years at 12.5% depreciation and other expenses etc.

Currently we are paying 1600 PM n rent so this new mortgage would be considerably less than what we currently pay for housing.

So back to the question. Will the bank take in potential rental income for the property as a home? I have a meeting with the bank next week so I will get a definitive then. If anyone has experience of a similar situation in the recent past I would love to hear your story.

Thanks

myshirt

No, they won't.

Look at some of the circulars given to intermediaries, they will give you a yes/no on what they will and won't include.

In the past, yes, but now no.

4ensic15

Not alone will they not take the rental income into account, they most likely will not lend on a multi unit property.

Hitman3000

ElKavo wrote:

As the catchy title suggests, we are looking at selling a property we have. It was in NE for many years but has been rented out for 4 of them. Now the property would sell for above the outstanding mortgage (tracker ECB +.95%). We are with Ulster bank and I know that they offer a switcher mortgage with the ability to keep the tracker (now ECB + 2%) type so thats great.

I would suggest you clarify with the bank how long they intend to allow you keep the tracker rate for.

TheShow

The tracker on that product lasts for 10 years. You don’t get your existing tracker rates, it’s higher but a tracker product none the less.

I suspect the multi let aspect will be an issue and you may be restricted to a separate mortgage on each unit, If the folios can be split. Every bank will have its own policy on the issue so unfortunately there is no one size fits all answer. Your mortgage advisor will need to speak to the mortgage credit dept to see if they will consider the property and the rental income.

TheShow

See the screenshot re tracker

Is the flat part of the house or is it totally separate. Is there a connection between the house and the apartment without going outside?

If there is then this could be a brilliant opportunity to make 14k a year tax free through the rent a room scheme.

Cuddlesworth

Having to evict an aggressive non-paying tenants that lives directly underneath you for a year? Sounds like a hoot.

ElKavo

myshirt wrote: »

No, they won't.

Look at some of the circulars given to intermediaries, they will give you a yes/no on what they will and won't include.

In the past, yes, but now no.

Great, I wasn't sure, I do remember when we bought the first property that they asked if we "could rent a room for 10k extra on the income" Not to worry I think our numbers should facilitate the mortgage once we sell the original property.

4ensic15 wrote: »

Not alone will they not take the rental income into account, they most likely will not lend on a multi unit property.

Thanks, its not a multi unit persay, there is a connecting internal door to the basement. We would simply lock this for our own security etc, perhaps install a heavy duty door etc.

Hitman3000 wrote: »

I would suggest you clarify with the bank how long they intend to allow you keep the tracker rate for.

I believe it is 10 years at the new 2.0% + ECB, I will be meeting wiht the bank next week to iron out all these details with them.

TheShow wrote: »

The tracker on that product lasts for 10 years. You don’t get your existing tracker rates, it’s higher but a tracker product none the less.

I suspect the multi let aspect will be an issue and you may be restricted to a separate mortgage on each unit, If the folios can be split. Every bank will have its own policy on the issue so unfortunately there is no one size fits all answer. Your mortgage advisor will need to speak to the mortgage credit dept to see if they will consider the property and the rental income.

Thanks, as I say it is not a multi unit, rather house over basement with internal access and external access to basement, so as above, we could fit out the basement like an apartment and lock / fit heavy duty door between basement and upper floors.

TheShow wrote: »

See the screenshot re tracker

Atlas Yummy Stepsister wrote: »

Is the flat part of the house or is it totally separate. Is there a connection between the house and the apartment without going outside?

If there is then this could be a brilliant opportunity to make 14k a year tax free through the rent a room scheme.

Yes, and yes, I think that we, if we can secure the property will follow this model. It would be the most tax efficient method. Once everything is above board I see no issue with this. Ideally I would like to have the basement on a separate meter for electric but I doubt this will be feasible on the rent a room criteria. I will be investigating this further.

Cuddlesworth wrote: »

Having to evict an aggressive non-paying tenants that lives directly underneath you for a year? Sounds like a hoot.

Not at all, of course it doesn't, however there are plenty of good people out there, I am one, who rent for years with no aggressive tendencies. That being said, should we go down the rent a room route they would be a licencee as opposed to a tenant so the same rules do not apply.

4ensic15

ElKavo wrote: »

Thanks, its not a multi unit persay, there is a connecting internal door to the basement. We would simply lock this for our own security etc, perhaps install a heavy duty door etc.



.

You originally said it was configured with a flat in the basement. Are there 2 kitchens? Are there 2 separate electrical installations? All of this will be reported at the survey stage. Connecting doors won't matter a damn.

4ensic15

4ensic15 wrote: »

You originally said it was configured with a flat in the basement. Are there 2 kitchens? Are there 2 separate electrical installations? All of this will be reported at the survey stage. Connecting doors won't matter a damn.

Of course connecting doors matter, it means they are the same building. Having a separate entrance and a second kitchen are meaningless. Every house has a back door (i.e. A second entrance, some even have 3 entrances) and a kitchen is just a room.

The op even confirmed they are on the same electricity meter, even if they didn't it wouldn't matter as with a connecting door there is absolutely no way you can argue that they are separate.