Renting my house and using equity to buy

ecclesto

Had 2 EAs around so far and not liking the valuations. Need advice on releasing equity on mine, using the rent to buy another house. How does this work. My house is worth £180,000 and have a mortgage of £5,000 (could pay it off if needed to). Want to buy a house for around £170,000 so how would I do this.

Thrugelmir

How much do want to borrow?

ecclesto

I really don't know how this works and would like to keep the borrowing to a minimum. How do they work out how much equity they will release?

Sammy85_2

If you are remortgaging your house and want to rent your house out, you will need a buy to let mortgage. These usually have large arrangement fees, generally around 2% of the borrowed amount. You may be able to borrow upto 75% maximum of the valuation, and it will be the lenders valuation, which could be less than what the agents have valued it at. Also be aware that BTL mortgages often have requirements based on the rental expected and your personal income.

If you take a look here on the Lloyds TSB website it will give you a bit of an idea of the requirements on a BTL mortgage.

Assuming the bank agree that your house is worth £180000 and they agree to lend you 75% of the value then that would be £135000, meaning you would need to find £350000 yourself to make up the shortfall to pay for your new house.

You may also want to have a look at the calculator on lloyds TSB website here. I used a valuation of 180k, borrowing 75% of that, £5000 outstanding mortgage, £25000pa personal income and £500/month rent on the house. The max they would lend is £113k.

Stick your actual figures in and see how it comes out.

Ditch_Crawler

I'm not sure that Equity Release is relevant to your situation. A 'buy-2-let' style mortgage on your existing property would seem to be more appropriate, I would have thought.

DC

ecclesto

It was the EA who mentioned Equity release, just trying to sort it all out. I know I will end up still owning my original house, renting that out, buying another with a mortgage. I only earn £17,000 a year and have been told my house will fetch between £700 and £750 rental per month. I want the rental to cover my mortgage and as I am 56 don't want a mortgage around my neck for ever!

getmore4less

ecclesto wrote: »

Had 2 EAs around so far and not liking the valuations. Need advice on releasing equity on mine, using the rent to buy another house. How does this work. My house is worth £180,000 and have a mortgage of £5,000 (could pay it off if needed to). Want to buy a house for around £170,000 so how would I do this.

What were the valuations.

Rent Say £750pm gross yield 5% on £180k

Do you want to be come a landord net yield will be lower and a lot lower if voids.

If the house is worth £180k sell it and buy the new one and be mortgage free


What is the motivation behind the move?

new_home_owner_3

getmore4less wrote: »

What were the valuations.

Rent Say £750pm gross yield 5% on £180k

Do you want to be come a landord net yield will be lower and a lot lower if voids.

If the house is worth £180k sell it and buy the new one and be mortgage free


What is the motivation behind the move?

Maybe he wants to keep it for 10 years and then sell, house prices do generally go up, so he might make a bit from the capital growth as well as the rent.

Then it might be a little nest egg for his retirement.

ecclesto

Don't know about landlords and yields!
Reason behind move is transfer of work and nearer to son. Hope house prices will rise in the next few years and as long as not out of pocket can keep the 2 houses on! Would be a nice nest egg as well.

new_home_owner_3

Looking at the figures what i would do his remortgage on a residential mortgage interest only, i would remortgage for 85000, on a long fixed rate, make sure when you remortgage that the lender will give you consent to let and there are no hidden fees if you do, infact tell them you will be moving on and need guarantees they will give you consent.

if you got a five year fixed rate 4.59 interest only your payments would be 325 pound.

I would then take another 85000 pound on a five year fixed interest only for your next purchase.

this would then give you 170,000 pounds for your new purchase.

Your total mortgage payments would be 650 and if you say your rent will be 750 it should cover both mortgages.

Then if you want you can pay capital off with your wages, or if and when house prices go up sell your first house and clear all your mortgages off and have a nice little nest egg.

Sammy85_2

A rent of £750 and interest payments of £325 leaves £425 of taxable income each month. Having a larger mortgage on the rental house will reduce tax liability on the rental income.

I also dont think you'll find many lenders who will give you a residential mortgage if you tell them you'll be moving on and will want a consent to let.