Releasing equity to buy an investment BTL

martini75

Hi all

I bought my first property which is my main residence in June 2009, It was a repossession and I bought it for £187,000, I put down 15% deposit (approx £28050.00. Between now and when I re-mortgage in June 2011 (2 years fixed mortgage) I am spending about £20,000 on renovations, because the house needs it and secondly because I want it to increase in value.

My first question is when I come to re-mortgage who and how will the house be re-valued, is it automatic or do I have to request a re-evaluation? And will they take into consideration the renovations?
My second question is what is the likely amount of equity that I will have built up in the house by June 2011 considering the renovations, any potential house price increases (at the time of buying the property my lender valued the house at £210,000, it was chape because the consolidation company wanted rid of it) and the amount I have paid on the mortgage etc?

My third question is do you think its feasible for me take approximately £30,000 of equity out of the house so I can buy an investment (BTL) property which will used to put down a 25% deposit on a £120,000 house, without losing much equity in my original property.
I believe when the renovations are completed the house should be valued at approx £220,000. My assumption is not based on the house increasing in value as there are only small signed of house price growth in Oxford for the foreseeable future, but the fact that I bought the house as a repossession at a cheap price and will have spent £20,000.

Obviously I understand that all my plans will depend on the market at the time, but it would be really helpful to have a hypothetical idea of whether it might be possible.
Cheers

Milliewilly

For remortgaging they often do an online valuation if its the same lender but will still charge the same as a surveyor visiting in that case your renovations won't be considered so you will be better of requesting an on site visit.

Second question - impossible to say as prices may drop or may increase. If they stay the same then you have £23K based on the purchase price and the initial surveyors valuation but you have spent £20k on renovations so only made £3k minus fees and mortgage payments.

Unless there are major renovations eg extension etc to increase the size then the value probably hasn't increased much but the saleability has i.e a new kitchen / bathroom etc.

third question - if you are talking about taking £30K out now then the only thing you can do is get the house revalued by your lender as you will still have to leave a certain equity in the property to comply with the terms of the mortgage as that will have been calculated on your £28K deposit. The chances are that you will have to have a new mortgage on your property at a different rate so you will incur legal fees etc.

From your valuation at £220K then you would now have c 60K equity in the house so its feasible that you could draw out £30K as a deposit.

BitterAndTwisted

My question is: if you keep taking out equity on the house, when will you ever pay off the mortgage and at what rates? Interest rates are very low at the moment and a sensible home-owner should be looking to over-pay the mortgage, not taking out equity. House-prices may fall in the next 24 months and you could find yourself deeply in the mire if you remortgage.

A huge number of BTL investors are taking a bath at the moment as rental-rates have fallen, even though a lot of them may have seen the interest on their mortgages falling substantially. Only the over-confident or fools with too much money would be considering BTL right now. Taking out the equity on your own home for a BTL is just madness in my opinion. Being a BTL landlord is NOT a game of skittles at the best of times but in a recession when renters and home-owners are losing their jobs all around, considering being an amateur landlord is only for the securely-employed with a view on the very far horizon or the insanely optimistic.

marcg

Whether or not it is a good idea, I think the situation is fairly simple to consider:

When you want to do this you will shop around for a new mortgage offer on the first house. You will get the highest loan-to-value ratio for a rate that seems reasonable to you and use that new mortgage to pay off the old mortgage. Assuming that the new mortgage is larger than the old, this will be your equity release.

To buy your second house you will need a buy-to-let mortgage, presumably on an interest-only basis. Again you will shop around for a lender willing to lend to you and at what loan-to-value ratio. The background checks will be much harder to satisfy since the lender will want to see that you can afford to (in the worst case scenario) pay two mortgages at once.

You should obviously check that you can get the second mortgage before you remortgage the first since if you can't it may not make sense to release equity.

The first mortgage will need to revalue the home to determine that they are offering the right amount according to the LTV ratio. Since you are likely to be wanting to release the maximum amount of equity you will be looking for the highest value - this will probably make the lender nervous and they will insist on sending their valuer.

Good luck.

martini75

Thanks for all your comments, they have given me a lot to consider, I will now consentrate on my current house and see if the numbers add up nearer the time