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  • FIRST POST
    • Whataretheoptions
    • By Whataretheoptions 19th Jun 17, 1:20 PM
    • 3Posts
    • 0Thanks
    Whataretheoptions
    Turn into buy to let and release equity
    • #1
    • 19th Jun 17, 1:20 PM
    Turn into buy to let and release equity 19th Jun 17 at 1:20 PM
    Hello


    I hope someone can help me with this one.


    My sister and I bought a house together on a five year fixed mortgage, with this due to end in April 2018. As anticipated at the outset, we're now at the stage where we'd like to go our separate ways. She would like to use her share of the equity as a deposit on her own place. I would like to use my share to start a business (and would move in with my partner).


    The obvious and most straightforward approach would be simply to sell up, however I am interested to see whether there is anyway we could instead retain the property on a buy to let mortgage. I understand that, typically, a buy to let mortgage requires a minimum of 25% equity. Therefore, if the property is estimated to be worth £900,000, we'd need to leave in £225,000. The outstanding mortgage is £350,000. So potentially we could release £325,000?


    I'm aware that there are various stress tests to be met around projected rent v mortgage payments, etc.


    It also seems to me that most buy to let mortgages have a maximum loan size of £500,000 (where as the figures I'm looking at would require a loan of £675,000). Is this the case for all lenders?


    Finally, would it be a problem that I would be looking to use my share of the equity to start a business, rather than to buy another place, as in a "let to buy" situation?


    Any guidance you can provide would be much appreciated.


    Thanks
Page 1
    • alex_163163
    • By alex_163163 19th Jun 17, 1:52 PM
    • 189 Posts
    • 115 Thanks
    alex_163163
    • #2
    • 19th Jun 17, 1:52 PM
    • #2
    • 19th Jun 17, 1:52 PM
    Afraid I can't answer your direct questions but from reading through your post, one flaw I can see is for your sister, if your plan is to keep a new 'buy-to-let' mortgage/ the property in both your names.
    As you have said she wants to buy her own house with her equity, she would then be liable for the higher rate stamp duty. Can she afford this? (Assuming she doesn't own any other properties apart from this jointly owned one)
    • Whataretheoptions
    • By Whataretheoptions 19th Jun 17, 2:08 PM
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    Whataretheoptions
    • #3
    • 19th Jun 17, 2:08 PM
    • #3
    • 19th Jun 17, 2:08 PM
    Hi Alex

    Yes that's a good point. The additional stamp duty would need to be paid for using the equity release.

    Thanks
    • amnblog
    • By amnblog 20th Jun 17, 7:59 AM
    • 9,843 Posts
    • 3,812 Thanks
    amnblog
    • #4
    • 20th Jun 17, 7:59 AM
    • #4
    • 20th Jun 17, 7:59 AM
    First things (among dozens of considerations) is will the rental potential on the property be anywhere close with this idea?

    Is it around £4K pcm?
    I am a Mortgage Broker

    You should note that this site doesn't check my status as a Mortgage Broker, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • Whataretheoptions
    • By Whataretheoptions 20th Jun 17, 12:45 PM
    • 3 Posts
    • 0 Thanks
    Whataretheoptions
    • #5
    • 20th Jun 17, 12:45 PM
    • #5
    • 20th Jun 17, 12:45 PM
    Hello amnblog


    Realistically, no. We're probably looking at around £3,200 per month.


    What if, as an alternative, I were to take a smaller buy to let loan of £500,000, releasing £150,000 of equity. We could then share that for our own plans, or perhaps I'd give that to my sister and put the house in my own name. Could that be a possibility?


    Thanks
    • Thrugelmir
    • By Thrugelmir 20th Jun 17, 6:37 PM
    • 55,520 Posts
    • 48,875 Thanks
    Thrugelmir
    • #6
    • 20th Jun 17, 6:37 PM
    • #6
    • 20th Jun 17, 6:37 PM
    What if, as an alternative, I were to take a smaller buy to let loan of £500,000
    Originally posted by Whataretheoptions
    If the property were to be empty or generated no income, would your budgets extend to covering the monthly outgoings?
    “ “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” Sir John Marks Templeton
    • dimbo61
    • By dimbo61 20th Jun 17, 10:14 PM
    • 9,494 Posts
    • 5,149 Thanks
    dimbo61
    • #7
    • 20th Jun 17, 10:14 PM
    • #7
    • 20th Jun 17, 10:14 PM
    We are now near the end of June 2017 so why not look at how you can improve the property in order to get the best sale price.
    No capital gains tax to pay as this was your home.
    Sell it next year to complete after April so no ERC,s to pay.
    Split the profit after selling costs 50/50 and then look at starting your business with your money.
    Your sister can buy a home for herself.

    Could you consider adding value by building an extension ?
    Last edited by dimbo61; 20-06-2017 at 10:17 PM.
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