Equity release from my home

Dazleeds

Hi,

Can i release the equity of my home and use it to buy another house and rent my existing home. I am under 55. Are they any banks do that.

Your help much appreciated.

Thanks

jimjames

Yes. There will be restrictions but the concept is possible.

You would need a BTL mortage on your current home, generally they need at least 30% deposit. The new mortgage on your new home would presumably need to be paid by the time you retire or show a way to be able to pay it.

Say your current home is worth £200,000, if you got a 70% BTL mortgage that would free £140,000 to buy a new house. The rent would normally need to be 125% of the mortgage amount for the BTL mortgage.

Brand0

jimjames wrote: »

Yes. There will be restrictions but the concept is possible.

You would need a BTL mortage on your current home, generally they need at least 30% deposit. The new mortgage on your new home would presumably need to be paid by the time you retire or show a way to be able to pay it.

Say your current home is worth £200,000, if you got a 70% BTL mortgage that would free £140,000 to buy a new house. The rent would normally need to be 125% of the mortgage amount for the BTL mortgage.

Jimjames - I'm embarrassed to ask as it's a fundamental issue. Am I wrong to think that remortgaging a current home to release equity to use as a deposit on another property requires CASH? On the one hand you (and everyone else, it seams) speaks of needing a deposit of 30%, then you talk of a 70% BTL mortgage.

I read this as meaning that the remaining £60k from your example above IS the deposit meaning one doesn't need to physically provide the £60k/30%. Am I wrong to assume this? The remaining balance of the existing mortgage is never mentioned either - your example above, to my logic would require that if there was say £50k remaining on the mortgage prior to taking on the BTL, that figure would be deducted from the £140k, leaving £90k for use as a deposit on the second property.

Am I crazy to think this?

jimjames

You are absolutely correct. You do not need the cash and the equity in the property would count as the cash.

In the examples I've assumed that there is no mortgage outstanding but as per your example any mortgage amount would be deducted. If there was a mortgage that would need to be cleared before any BTL mortgage could be taken out.

Brand0

Blimey Jimjames - that was a commendably quick response - and a response I like!

I'd appreciate your opinion on the following facts and figures - please give them on the basis that the figures are correct and I've considered all the pitfalls/costs associated with letting - I'm still considering them and have yet to decide which way to go, hence this message:

Property 1
Mge remain: 50k
prpty value: 250k
Rental income: 1k pcm

Property 2
Value: 250k

Note
I'd need also to allow for additional costs of around 30k (long story) that I would want to take from the equity that would not go towards bricks and mortar.

I've run figures in a huge spreadsheet for so long now that I'm losing the will as the same figures look much more or much less attractive depending on my mood!

My view is that I'm right in the middle rather than the prefered place to be of either 'do it - it's low risk as you have so much equity' or 'don't be stupid - sell the house and be happy with your small mortgage'. I'd love a straight-forward position where the way forward was obvious.

What do you think?

jamesd

The rental looks like a poor deal. Only 4.8% gross yield, well below usual BTL targets. Looking at it purely as property investment I expect that you could do better by buying two other properties that need refurbishment instead and refurbishing them to improve their economics.

Brand0

jamesd - Thanks for that. On the back of that i found this site - http://www.yield-calculator.co.uk/?AspxAutoDetectCookieSupport=1

The perfect tool for idiots like me. I got my yield to about 5.4 - still not good enough.

jamesd

I neglected to mention: the two other properties would be half the purchase price each. This makes CGT easier to manage and adds some diversification. Assuming they are in areas where the anticipated gains are similar for the different property values.