Mortgage on 2nd property

jostock1974

I would very much appreciate peoples opinion on my current dilemma.

I currently own a property outright - its worth around £125,000. My husband and I are looking to buy a new property worth around £185,000.

We are considering raising a buy to let mortgage on our existing property and renting it out - we estimate we would get around £480 a month for the property. We would mortgage to the max possible in order to claim interest relief on any income received (depending on the maximum LTV on the mortgage between 90,000-100,000). We wuld then take out a separate mortgage on the new property for the difference.

Can anyone advise if this is the best approach to take?.

Obviously taking out mortgages on two properties involves more cost in terms of arrangement/valuation fees. Would it be possible to take out a 100% mortgage on the new property, but use my existing property as collateral?.

Does anyone know if you rent a property out but do not have a mortgage on it - can you claim interest relief from the property you are living in yourself (on the basis that you have had to raise this money in order to let the house?).

Any comments would be very much appreciated - as we need to make a decision about how we are going to do things asap!!

Thanks

Jo ~:)

homer_j_3

Why are you raising 90-100k on the existing property if you are not using it towards a deposit? Sorry if that sounds intrusive but to put yoursel in 90k worth of debt and possibly straining yourself financially when the property is empty, I cannot see why the tax relief would be such a huge benefit on this amount.

If you are wanting to raise a Buy To Let Mortgage on your current property and use the rental income as the affordability for this then you will need a monthly mortgage payment of somewhere in the region of 350 per month on interest only. I believe on 90k this would mean you need a rate of about 4.7%.

You have not mentioned what your incomes are for us to say whether a 100% mortgage will be available to you. I woud say that you may pay a premium for having no deposit against the 2nd property.

If you can post your salaries then we should be able to give you a better idea.

homer_j_3

Why are you raising 90-100k on the existing property if you are not using it towards a deposit? Sorry if that sounds intrusive but to put yoursel in 90k worth of debt and possibly straining yourself financially when the property is empty, I cannot see why the tax relief would be such a huge benefit on this amount.

If you are wanting to raise a Buy To Let Mortgage on your current property and use the rental income as the affordability for this then you will need a monthly mortgage payment of somewhere in the region of 350 per month on interest only. I believe on 90k this would mean you need a rate of about 4.7%.

You have not mentioned what your incomes are for us to say whether a 100% mortgage will be available to you. I woud say that you may pay a premium for having no deposit against the 2nd property.

If you can post your salaries then we should be able to give you a better idea.

jostock1974

Here are our sums:

At present: £125,000 equity in property

Option 1: Rent this property out and buy another property for £185,000

Buytolet mortgage on present property (for deposit on new property) of £90,000@5% (72% LTV) = £375pcm IO
Mortgage new properrty of £95,000@5%(52% LTV) = £400pcm IO
Total interest paid on mortgages = £775 pcm IO

Rental income from property 1 = £530

£775-£530 = £245pcm is the amount we need find for the difference - but obviously not withstanding costs of letting a property such as building insurance, repairs and homelet.


option 2: Sell current property and buy another at £185,000

Sell old property@£125,000
Deposit on new £125,000
Monrtgage on new £60,000 = £250pcm IO



From the above it appears that we break even in terms of how much money we need to find each month to pay the IO part of the mortgage. The only extra cost is the costs associated with renting. I suppose you would only go ahead if you thought house prices were going to increase sufficiently to compensate for this.

We have savings of around £5,000 we could use if we ever needed to cover void periods and family that would help us out.

My husband earns around £22,000 a year. I am currently training to be a teacher and next year I receive a £9,000 tax free bursary, plus I can earn another £4000 or so (tax free) doing tuition.

By the end of next year I should be earning around £20,000 pa. We can then start paying off some of the capital of the new mortgage.

Given this info, we would very much welcome any advice - we have only ever bought the 1 property and so we are not very well practiced in how to go about things!

thanks and Kind regards,

Jo