Buying a second home

richardfortnam

I currently own a small flat which I let but am renting another property in a different town as my residence. I'm now looking to buy a new home but don't want to sell the flat in the current economic climate.

Q1. Is it an option or possible to release the equity in the flat to help with the deposit on the new home?

Q2. Are there any complications with getting a mortgage when I have an exiting mortgage on the flat which I am letting?

Q3. Are there any significant tax or financial implications which would impact upon me?

CLAPTON

q1 .. in english you mean can you get a bigger mortgage on the flat; well it depends upon your LTV ratio and rental income; best to ask your BTL mortgage provider

q2 .. the fact you have a BTL morrgage and rental income will probably be taken into account when assessing affordability

q3. presumably you declare the rental income to HMRC; the amount of interest that can be offset against the rent is limited to that appropriate to the value when first let so may be less that your 'new' mortgage
cgt will be potential chargeable when you sell

paintingestimate

Useful and helpful information shared with interesting helpful ideas and nice details.

richardfortnam

Thanks Clapton for your info, just wanted to get some background info and see if this was a viable option before contacting my exiting mortgage lender and any brokers.

GMS

From a mortgage point of view you may be able to raise the deposit by remortgaging the flat, subject to criteria. Buy to Let mortgages are required to be self financing ie the rent is sufficient to repay the mortgage, plus a % further. 125% of the mortgage payment is generally the required figure.

For a residential mortgage application the Buy to Let will generally be ignored for affordability purposes as it is a self financing product.

What do you owe on current mortgage? What is the value? What is the rent per month?

richardfortnam

Thanks GMS useful information. I don't really want to publish any specific figures here but safe to say that at present my rental income covers repayment of the mortgage on the flat.

GMS

If the rent would cover the proposed new mortgage by the same percentage then you may be able to raise funds.

Your broker will be able to give you full illustrations etc.

Good luck

mlz1413

richardfortnam wrote: »

I currently own a small flat which I let but am renting another property in a different town as my residence. I'm now looking to buy a new home but don't want to sell the flat in the current economic climate.

Q1. Is it an option or possible to release the equity in the flat to help with the deposit on the new home?
Depends on lenders critera and your current LTV.

If you currently have permission to let on a residental mortgage then you will need to change this to a BTL which often only offer 60-70% of current market value and will have other critera to meet.

You maybe able to port the current residental mortgage if you are in a fixed rate or just wish to keep .

Q2. Are there any complications with getting a mortgage when I have an exiting mortgage on the flat which I am letting?
If you currently have a residental mortgage then yes, see Q1

Q3. Are there any significant tax or financial implications which would impact upon me?

You need to declare your Rental income and expenditure to HMRC, direct.gov have details or what is claimable for tax purposes. Any profit is taxable, losses can be carried forward.
(Rental of another property is not generally a claimable expense).

Financial implications would be tenants not paying, repairs on both properties being your responsilbilty.

Also if you sell the flat and have not lived in it for 3 years then CGT will be payable on the profit - ie sell price less cost price less capital expenidure (latter is unlikely in a flat).

You would benefit seeing a whole of the market broker to see what sort of info they need and get an idea of what products are on the market so you can work out costs.