Hi MLC
Is this the correct summary?
Let's assume that the bank will lend you the money - is it a good idea? I am not sure that it is. You have 4 young children.You are going to have big expenses. Your partner may want to take a career break.
Worry at this stage about the next ten years or so and not what your child might want at some stage long into the future.
So I would suggest selling your existing house and living comfortably with a small mortgage. Pay it off and then start saving again. I assume your son has some special need. When that arises, then with your savings, maybe buy something at that time for him.
But if you really want to keep your house
Approach Pepper about refinancing the Buy to Let. They are the only lender who might do it. But it will be a high mortgage rate. Do that now, so you know where you stand.
Buy the house when you have approval from Pepper.
Alternatively, buy the house now and live in it for a few years before extending it. If you have paid down the mortgage a bit and if your income has increased, you might be able to get a remortgage for the extension. If you can't, then apply to Pepper at that stage or else sell the investment.
If you can remortgage your current home
1) You will not be able to claim the interest paid on it for tax purposes, so you will pay the top rate of tax on the entire rental income
2) You might be better off getting a 90% mortgage on your home as the home loan rate is cheaper than the rate Pepper would charge. However, if you are borrowing close to 80%,the rate might be cheaper, so it could be worth borrowing a bit more from Pepper and a bit less on your home loan.
Brendan