Releasing equity on a property

Sartois_2

Hi all,

I'm looking for some advice concerning releasing some equity on my current property. At the moment I own my current property and it's worth about £140k, it's mortgage free and I'd like to release up to £70k max - for the purposes of buying a second property to rent out.

The question is, given I want the money to buy an additional property, will this be seen as getting a buy-to-let property and hence fall under those lending rules. Or, does the lender simply check if you can afford the repayments and leave it at that?

Thanks,

Alex.

somethingcorporate

Will you be buying the second property outright? Otherwise if you were letting that one out with a mortgage that would be a B2L mortgage.

Re-mortgaging your residential home to release equity would be under normal residential terms.

holly_hobby

If the mge is secured on your own residential home, than affordability is all they are interested in.

Your choice of lenders may be restricted though, as your property is currently unencumbered i.e no existing mge - some lenders don't allow a remortgage on an unemcumbered property.

In that case, you just buy your 2nd property with a BTL mge instead - this is also more tax effective as you are allowed to deduct all expenses from your gross rental income, before tax is calculated on the remainder.

In fact it would be better going to a good whole of market broker who will source and present both solutions to you, and you can select the most cost effective route.

Hope this helps

Holly

Sartois_2

The second property wouldn't have a mortgage of any sort on it - but obviously it'd have money in it from the equity release.

From what you're saying, it sounds like that'd be considered ok then? Don't worry, I appreciate you're not a mortgage advisor for a bank and this isn't legally binding.

Sartois_2

Thanks for your thoughts Holly; I have looked at the BTL route, but the set-up costs are pretty high and the interest rate is normally at least 1% higher as well, so that's pretty irritating.

I've run a spreadsheet with interest rates, plus projected costs for a BTL property but I'll have another look at it.

TrickyDicky101

holly_hobby wrote: »

In that case, you just buy your 2nd property with a BTL mge instead - this is also more tax effective as you are allowed to deduct all expenses from your gross rental income, before tax is calculated on the remainder.

This is a misnomer: whether the finance is raised on your existing property or secured against the BTL property, you can offset the interest costs against your rental income. As long as you can justify the cash raised from a residential mortgage is being used for business (ie BTL) purposes, you can offset as a business expense. You should be able to justify this without a problem should HMRC come knocking.

kingstreet

TD's right. Money can be raised on BTL or on residential and still has ability to offset interest costs against rental income.

holly_hobby

TrickyDicky101 wrote: »

This is a misnomer: whether the finance is raised on your existing property or secured against the BTL property, you can offset the interest costs against your rental income. As long as you can justify the cash raised from a residential mortgage is being used for business (ie BTL) purposes, you can offset as a business expense. You should be able to justify this without a problem should HMRC come knocking.

Good point, as long of course as the paperwork and all assocated documents, present a clear audit trail for HMRC then this is of course permissible.

Thanks TD for making this clear.

As a follow on (my mge placement days are behind me & now involved in regulation), so do TD or Kings have any assistance they give OP for sourcing a lender for unencumbered rmg of this nature (to source pch of prop no 2)?

holly_hobby

Sartois wrote: »

Thanks for your thoughts Holly; I have looked at the BTL route, but the set-up costs are pretty high and the interest rate is normally at least 1% higher as well, so that's pretty irritating.

I've run a spreadsheet with interest rates, plus projected costs for a BTL property but I'll have another look at it.

This is mentioned as a possible 2nd alternate route to finance the pch of your rental property - if for example your income doesn't stack up for a straight remortgage on your main residence. The fees are higher on a BTL mge, as it isn't a traditional "residential" mge, but the trade off (with a suitable lender whose criteria suits) would be obtaining finance to pch your chosen property, based on its projected rental income.

As I say its a possible alternate to enable you to sidestep any income issues preventing or restricting a remortgage of your main residence.

A good WOM mge broker will be able to walk you through all the available options and suggest the best cost effective route.

Of course its wise to ensure that you also obtain qualified tax advice on the tax issues arrising from rental income which will be derived from your new rental property - with a view to mitigate your resulting tax as much as possible.

Hope this helps & good luck

Holly

kingstreet

holly_hobby wrote: »

so do TD or Kings have any assistance they give OP for sourcing a lender for unencumbered rmg of this nature (to source pch of prop no 2)?

Please don't make me work, holly.

holly_hobby

kingstreet wrote: »

Please don't make me work, holly.

Sorry Kings ... !!!! :rotfl:


Holly