property as collateral

gettingthere1

Hi,

I am about to inherit a two bedroom flat that is around three years old. The home report values it at £115k, but in the current market, I suspect it might sell (if it sells at all) for around £85k.

I have to move 90 miles away because of work and would like to buy a property. I will have paid off all my debts within a couple of months and wondered if I could use the flat as extra collateral on a new property?

I have one default that is almost four years old and was settled last month. This has stopped me getting a mortgage in the past.

Would any lenders accept the flat as extra collateral? It would be fine if the flat sold, but the market in my area is very poor. I could also rent the flat out and make more income.

Thanks for any advice.

TonyMMM

gettingthere1 wrote: »

The home report values it at £115k, but in the current market, I suspect it might sell (if it sells at all) for around £85k.

It is worth what it will sell for ...forget the 115k figure.

Price it to sell and get rid - this will give you a substantial deposit to put down on a new property , and make getting a mortgage much more likely.

If you want to become a landlord that is another option, but read up on all the legal side, including the pitfalls, first.

gettingthere1

Thanks for your reply Tony, I have been monitoring the market for flats around here for a few months now, and I really doubt it would shift, even though it is a very nice property finished to a high standard.

I can see your point selling it, though I am still attracted to the idea of using it as collateral and earning money from it at the same time, so if anyone knows if this is viable, I'd be grateful for any opinions.

Thanks

herbiesjp

You can use as collateral, by raising funds via a BTL remortgage.

That way you have funds to put down on your new purchase, and the propety will be let out.

You would need to investigate the figures to see whether or not this would be a financially viable option though i.e. rent income covers mortgage etc.

gettingthere1

Thanks for your response. Would it be more difficult to secure a mortgage if I had a BTL mortgage already though?

herbiesjp

It can cause issues with some lenders, but most should be ok as long as the rental income covers the mortgage payments on the BTL.

There is other criteria that would need to be met for both mortgages, but a good whole of market broker will be able to explain the whole process to you.

getmore4less

What will the place rent for?

gettingthere1

£450 per month would be a fair rent I think. It has hardwood flooring and triple glazing etc, as well as its own parking space in a secure car park.

herbiesjp

As long as the mortgage payments are less than that, you should be fine (based on the rental calculator of the chosen lender).

How much did you want to raise from the rented property? Different lenders use different rental coverage calculators, and so the maximum amount offered will differ between lenders.

gettingthere1

I'd need a pretty big deposit for a property in the city I'm going to live in, especially with the default on my file. I did a BTL calculation on another site and it suggested that I could (ideally) borrow around £70k on it, based on the rental income and property value of £115k

orangina

The property value is £85 not £115 so why are you looking at calculations for £115?

Raising money from the property on a buy to let is the only solution - a bank will not lend on a new property and use the existing property as "colateral" as they will not take a single charge against both properties.

You need to investigate if you are likely to gain a mortgage on the new place with your anticipated deposit ( be conservative) before you start spending money on the buy to let as you only just paid off your default last month.