Second Mortgage advice Please

macgirl

Hello

I have a house worth approx £130k with a mortgage of £55k fixed for 5 years in Jan this year. The mortgage is in my name only. We'd like to rent it out and I assume I'll have to switch it to a BTL.

DH and myself earn around £42k each (he is self-employed) and would like to buy another house towards the end of the year.
In theory, would we be able to increase the BTL amount to release some equity for a deposit on the second property?

Obviously, I have personal debt and we will not move until it is repaid - which we hope to do before the end of the year. But I would like something to aim towards in terms of what is possible - or not....

Any advice is very much appreciated, thanks

macgirl

Thought I'd bump this up to see if I have any joy on a work day

herbiesjp

Yes you can raise the funds.

However you are only just starting a 5 year fix - so if you were to come out of that deal you would have penalties to incur.

Thrugelmir

Is the net income (after tax) from renting out your existing property sufficent to your repay the BTL mortgage ? After allowing for equity withdrawl to fund the purchase of your new home.

macgirl

herbiesjp wrote: »

Yes you can raise the funds.

However you are only just starting a 5 year fix - so if you were to come out of that deal you would have penalties to incur.

The 5 year deal is portable, so would we be able to use it on the second property and add my OH? Thanks

macgirl

Thrugelmir wrote: »

Is the net income (after tax) from renting out your existing property sufficent to your repay the BTL mortgage ? After allowing for equity withdrawl to fund the purchase of your new home.

Hi thanks for your reply.

At the moment it's on a 7 year term, but we'd have to extend that to 25 for the forseeable future. On that basis, even with the potential extra borrowing, we would still clear about £100 per month. This is before any deductions from a letting agent.

herbiesjp

macgirl wrote: »

The 5 year deal is portable, so would we be able to use it on the second property and add my OH? Thanks

The answer to that is..... possibly.

It all depends on whether your current lender will allow you to do so - and how long after redeeming the current mortgage onto a BTL basis, you have before the portability and refund of penalties would happen.

As long as you do the re-mortgage and the porting around the same time, then the penalty issue may not be relevant.

macgirl

Thanks very much for your reply.
I'm with the Natwest and I did ask them prior to taking out this 5 year fix, as I knew it was on the cards that we'd want to keep this house and buy another.

Glad you don't think it's a ridiculous notion and within the realms of possibility, so thanks again!

Thrugelmir

macgirl wrote: »

Hi thanks for your reply.

At the moment it's on a 7 year term, but we'd have to extend that to 25 for the forseeable future. On that basis, even with the potential extra borrowing, we would still clear about £100 per month. This is before any deductions from a letting agent.

£100 a month is an insignficant amount, in terms of comfort for a worst way scenario. As you say you haven't accounted for the letting agents fees. You may have rental void periods, the property will require maintenance over time, the tenants may trash the place.

Ideally you should prepare a business plan and see if it works for you. I'm not attempting to dissuade you, but suggest you think long and hard as the downside can be very expensive if it goes wrong.

macgirl

Thanks, any comments are welcome. We have factored in saving a minimum of £250 per month to cover all the scenarios you mention.

We live in a popular area close to town, motorways, University and hospital. There are lots of rentals in the area, but they tend to let pretty quickly. We've been watching it for years. Despite lots of flats being built, houses like ours still seem popular.

I'm aware of some of the pitfalls, though admittedly not all, so thanks again.

Thrugelmir

Then you need to ascertain the cost of raising the BTL finance. Rates are normally above residential mortgage rates and often have sizable upfront fees.

Depending upon the type of BTL mortgage you are thinking of obtaining. Factor in to your plans the scenario of base rates rising by say 3%. Its unlikely that you will be able to pass this onto your tenants in the form of increased rent in the current economic climate.