Maxsteam is basically right in what he is sayimg and you are going to need to re-evaluate what you want as you are way off target.
The first thing you would need to do if you want to rent your current home is get what is called Consent to Lease on your existing mortgage. This is official permission from your lender to allow you to let the property. You cannot just go ahead and rent the property, it needs to have either the right type of mortgage on it or consent from the lender. The type of mortgage you have on the house will be a residential mortgage which is a mortgage based on this being your main residence for you and your family. If you rent the property then it is no longer your main residence and thus the mortgage on the property is incorrect and should be switched to a rental mortgage (Buy to Let) It is illegal to rent a property held on a residential mortgage. It is commiting fraud
Normally you would have to get a buy to let mortgage and this would be the route that the lenders would usually force you down as this is the correct type of mortgage for renting but the problem is that you need 25% equity in your property to gain a but to let mortgage. As you are in negative equity you cannot get a BTL mortgage and so you have to speak to your own lender and ask for permission therough something called Consent to Lease. It is on the lenders discretion whether they grant this or not but your reasons are genuine and so they should agree. The consent is issued on an annual basis but WILL NOT be indefinite and most likely will last for only 2-3 years or until you are able to remortgage onto a buy to let product. While you have the consent to lease you will not be able to remortgage onto another residential rate with either your own lender or another lender and will have to remain on the lenders variable rate which is likely to be 2% - 3% higher than regular residential rates.
Renting a residentially mortgaged property without consent from your lender is commiting mortgage fraud and if you are caught renting your residentially mortgaged property without consent the lender will likely place a fraud marker against your credit profile which will make gaining any kind of insurance in the future nearly impossible and extremely expensive. This includes home insurance which is a legal obligation against a mortgaged property but also for car insurance, liability insurance and many other types of insurance. Fraud markers can really make a mess of things for you.
Assuming that you gain the consent then you can rent the property. Now that the property is rented then we can hopefully write this mortgage off as self sustaining. To be self sustaining the lender may make one of 2 calculations. They would want to ensure that the rental received covers the equivilant balance of the mortgage on an interest only basis by 125% so this would mean a £400 interest only mortgage would require £500 rental. The other calculation that is generally used is the same but the current mortgage on interest only basis would be charged at an assumed rate of 6% and then the rental would need to cover this amount by 25% extra again. (£100k @ 6% interest only = £500 x 1.25% = £625 rental needed), if this cannot be achieved then any shortfall in this figure will be counted as a financial commitment against your earnings. If your rental exceeds your mortgage then this excess could (potentially) be used as income towards your new mortgge but the lender would require SA302's (HMRC tax receipts) to show the tax paid on the rental income received.
Assuming that the rental can cover your mortgage then we can look at proceeding to the new purchase. As Maxsteam has said, you would be allowed to borrow approximately 4x your annual income so with an income of around £33,000 then this would mean borrowing of around £132,000. Some lenders may allow up to 5x income, some may allow less. All lenders will also take into account any existing financial commitments you may have such as loans, credit cards, store cards, other mortgages (if not covered by rent) car finance, HP and any other credit agreements. If you have a balance on anything like this it will be used ro reduce your borrowing power. If you have any dependants such as children or a wife or partner who doesn't work then this will also reduce what you can borrow as you need to support these people with your income. From your post I have to assume you have at least 1 child so this would reduce your income but most lenders will allow use of tax credits towards mortgage income. If the tax credits are in your name only then they could be used, if they are in a partners name too they can be used but only if the partners name is on the mortgage application too, if the tax credits are in dual name and if the partner is not going to be on the mortgage then the tax credits could not be used. In other words, the tax credits can only be used if all the named beneficiaries are also on the application. Some lenders will also allow child benefit to be used towards your mortgage income.
Best case scenario is that you get 5x income and can use tax credits and child benefit but even with this I would struggle to see you being allowed to borrow in excess of £180k.
Last but not least is the matter of the deposit. No lender in the country is offering straightforward 100% mortgages at the moment and the very minimum deposit they are normally accepting towards a mortgage is10% so this would mean to look at the property purchase of £350,000 you would need to find a minimum cash deposit of £35,000 to put down on the house before the lender will allow the mortgage to go through. If you do not have these hard funds then the lender will not accept the application. You will not be allowed to get a discount on the property price nor raise the value of the property to account for a deposit as the mortgage will be based on a valuation completed by the lenders own surveyor, the deposit will have to be hard cash, investments or fluid assets that can be evidenced through bank statements and such. Lenders will often look and ask to see evidence of how the cash has been built up (for money laundering purposes)
This does not paint a rosy picture for you I am afraid. Assuming you have a 10% (£35,000) deposit and assuming that you can borrow up to £180k then this still means that you are £135,000 short of being able to purchase this property.
Do also be aware that if you sell your own property you may still be within the "pre-emption" period with the council and this can mean that they can claim back some of the discount that they initially gave to you. I think most English councils have a 3 year pre-emption but alot are now looking at 5 years and some are even issuing 7 year pre-emptions. You may need to check on this.
Sorry for the mainly negative reply, but facts are facts and it is best to know what position you are in.
Good Luck
