Can I change my residential into a buy to let?

Polypops

Hi guys,

I would greatly appreciate if someone could help me.

Me and my boyfriend have a residential mortgage on our home that we live in it's worth £160k and we have £117k remaining on the mortgage.

We have seen a lovely house that we would like to buy but don't really want to sell this house as it is in a great location and will rent out very quickly,meaning we wouldn't be stuck in a chain.

The new house we would like to buy is £180k.......... The problem is how do I release some equity out of our house to use as a deposit for the new one whilst at the same time change the mortgage to a buy to let interest only to allow us to rent it out for £700pcm?

I really have no clue and was thinking about getting a loan to cover the deposit for the new house and just try and change the mortgage separately.

Any help would be more than welcome

Thanks xx

Raggs_2

You need 75% ltv to stand a chance for a btl mortgage. That allows for 120k mortgage on your current place, so you have 3k equity.

700 a month is just over the equivalent of 5% interest, but then you have issues of insurance, maintenance and periods of no occupancy. Plus, since you won't have large deposit even if you do manage to get a btl mortgage, you'll be on a very high ltv, and thus have a high mortgage rate.

If you sell up, you could get a 80% ltv mortgage, and have access to some decent deals.

Loans won't be accepted as deposit.

Do you have enough income to potentially support both mortgages even assuming you manage to get them?

Polypops

Thanks for the info! We don't really want to sell our house right now, and we prob miss out on the other house waiting for ours to sell hence why we wanted to rent it out so we could have best of both worlds.

If I was just to change our mortgage to a buy to let interest free mortgage. I'm I right in thinking I would not need to put a deposit down as it's already in our house so it would be a btl of £117k which is what is outstanding on the residential mortgage?

Also what kind of rates would I be looking at ?

Sorry for the dumb questions

Cannon_Fodder

Its not the best of both worlds if the maths doesn't add up.

You are right that you might not need a deposit, as it is already "in" your house, to convert the current house from residential to BTL.

A Lender may not agree IO. Not that it benefits the equity/deposit situation, if they did. You'd need a repayment vehicle, which negates the point of IO, but never mind as that's a red-herring...

If your equity is all used up, to secure the BTL conversion, you will be left with no deposit for the new place.

The £3k that Raggs mentions will disappear in fees...

You need £18k for a 10% deposit, plus fees of around £3k, so £21k, in cash in the bank right now, to even begin to consider buying the new place, more for a decent deal.

It doesn't matter what BTL rates you might get, as its not really helping to secure the new place.

The equity you have needs to stay in the BTL. At the moment you have nothing to secure the new place with.

zzzLazyDaisy

As someone else asked - do you have enough income to pay both mortgages?

You may get a bad tenant who doesn't pay - it can take months to evict

Or you may have tenant who leaves at the end of the fixed term without giving notice (as they are entitled to do) so you could easily be a month or two waiting for a new tenant

Also don't forget you have to pay income tax on any profit after expenses are deducted.

I do understand your reasoning, and in fact I almost did exactly what you are planning to do when I moved last time (although the flat I was leaving was fully paid for, which makes a difference). I did a lot of research and spoke to some people who had done the same thing, and decide it was not for me, so I sold up.

That was in 2004 - I am so pleased I did, those flats are worth about £30,000 less today!

Cashsaver_3

We've kind of done this but the other way around.
We overpaid our 65k mortgage for years, bringing it down to 18k. In the meantime, we saw a 4 bed house we loved and just sat and bided our time until it came on the market.
We got a BTL mortgage on the 4 bed house by using the equity in the 2 bed and have signed a 12 month lease for rental of the 4 bed for 950pcm.
Difference is, we are still living in the 2 bed until the tenants want to leave (predicted Feb/Mar 2011) but if they want to stay, no worries on that.

First thing we did before entering into any of this was research how to be a LL and we've made sure we are following all laws to the letter, protected deposit, registered with inland revenue etc....

Also, if we suddenly lose our tenants for any reason, or they decided not to pay....we can cover both mortgages for the term.

All this was achieved with the help of LL on here and the adive they gave and also by joining landlord zone.

It's working so far for us so it can be done if you have the proper funds etc....

Good luck.

scottishf

I am in a similar situation and unsure what the best option is. We have a house which we own outright worth approx 100 k....I want to buy another house which is 160k. I have savings of 10k and want to rent out the house i am in now, but if I do this I will need a mortgage of 150k which I don't think I will get(my income is around 25k) The only way I can see me getting this house is if I sell this one and put the money towards the new one and get a mortgage for the difference....although I so wanted to rent this one out.

mynameisdave

scottishf wrote: »

I am in a similar situation and unsure what the best option is. We have a house which we own outright worth approx 100 k....I want to buy another house which is 160k. I have savings of 10k and want to rent out the house i am in now, but if I do this I will need a mortgage of 150k which I don't think I will get(my income is around 25k) The only way I can see me getting this house is if I sell this one and put the money towards the new one and get a mortgage for the difference....although I so wanted to rent this one out.

If you are sure you want to buy the second house you can release equity with a mortgage on your current property providing you with sufficient funds to place a deposit on the place you want to but.

scottishf

mynameisdave wrote: »

If you are sure you want to buy the second house you can release equity with a mortgage on your current property providing you with sufficient funds to place a deposit on the place you want to but.

NOt really savvy when it comes to it...how would I do this

Polypops

Ok so, I'm thinking that trying to keep both house is going to fail......

But to get the new house I have to act fast as it's a good price and it's a no chain..... Surely there must be a way of me buying the new house while my house is on the market waiting to be bought.

I'm just afraid that if we have to wait for our house to sell the other one will have sold

Turnbull2000

Realistically, there's probably tens of thousands of rented properties out there on residential mortgages. In fact, I would be surprised if this applies to the majority of 'accidental' landlords.