Can I use existing property as security/deposit on another

catt_231

I fully own my flat it's worth around 40-60k (not been valued since I bought it - basing the figure on initial value and selling prices of others in the area currently)

I've seen a house I would like to buy, I can afford a mortgage on it fine but don't have the initial deposit.

Can I secure the new house against my property and then rent out my existing one? So basically if I was to default they would get two properties for the price of one? as my flat would definitely be worth more than what the bank would require as a deposit...

holly_hobby

No .. you will generally need a monetary deposit, at it goes to the Vendor not the bank actually providing the mortgage/finance.

You could raise the deposit against your current property via a BTL remortgage, subject to LTV, sufficient rental income at circa 125% of the monthly mge repayments, and status of course.

Hope this helps

Holly

kingstreet

I was thinking about cross-charging schemes the other day. In the good old days, I used to use the Staffordshire for this business. They'd charge both the old property and the new one, so we had no real issues over deposit and LTV.

Staffordshire is long gone, but Aldermore and Tipton & Coseley have both started schemes which involve taking a charge over a parent's property to assist FTBs with a 100% mortgage.

I don't see why this couldn't be adapted to suit those in the same position as the OP.

catt_231

holly_hobby wrote: »

No .. you will generally need a monetary deposit, at it goes to the Vendor not the bank actually providing the mortgage/finance.

I hadn't really thought about that... thought all the funds cleared to the seller at the same time

It's a pity though, I'd rather not have two mortgages

holly_hobby

Well it actually goes to the Solicitor who holds for the Vendor until release - but the point is it doesn't go to the lender.

Unless the Vendor will accept a charge on your property equal to the lenders required deposit, or you can source a 100% (in essence a let to buy)mortgage for a non FTB, as touched on by Kings - you're a bit stumped I'm afraid.

As I say the releasing capital from the existing property by way of a remortgage (or possibly by a personal loan if below 25K, or secured loan (with lenders consent), if amount reqd is 25K+) - to fund the new main residence pch, would be the way to go - dependant upon the free equity available, LTV & status of course....

Hope this helps

Holly

catt_231

Yeah I'm thinking that a small BTL mortgage would be the best option then

I've found though looking that the smaller the amount you want the higher the interest rates suppose it's still cheaper than a personal loan...

holly_hobby

Interest payments are a permitted deduction (subject to HMRC regs) from rental income for HMRC purposes being the only silver lining ....

Have a chat with a whole of market mortgage adviser to ascertain the best route and product for you, whilst giving you guidance on HMRC and general rental issues.

You should also ensure that you have sufficient capital to act as an emergency fund for the let property - for such events as repairs, and periods whilst your property is unoccupied and you are without rental income.

You will also need to effect landlords Blds ins (whilst ideally I would recommend a combined landlord B&C policy), and advise HMRC within 2yrs of the change of your primary residence (this is for CGT purposes), and may be reversed or changed as appropriate.

There is a great BTL sticky on the board - which I would suggest you read through before diving in to becoming a landlord, which can be very rewarding or a right royal pain and heartbreaker !!

Just to be aware - if you sell your let property within 3 yrs of vacation, there will be no requirement for any CGT assessment. If you sell in excess of the 3 yr anniversary, any gain will be liable to a CGT calc, which will be offset by the period whilst held as your primary residence, lettings allowance, annual cgt allowance, and any losses - so there may well be very little or nil liability - just something to be aware of.

Good luck .... hope this helps

Holly x