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Using equity to buy second property - many questions!

Hello all, I am a long time reader, first time poster. I need some help as I'm not sure what I am really looking for.

I have a flat on a 5 year fix with accord until 2015. I've been given £215K to pay of the mortgage, which will allow me to pay off the mortgage and the 10K odd ERC.

So once this is done, I will own my property outright, i bought this for 250K and prices are still on the up in my area.

I want to use the equity from this house to buy a second flat to live in, leaving my first flat to be let out.

I earn £42k pa, my partner earns £40K however, has just started maternity leave.

Would we be given a mortgage for a second home worth £400K? If not 400K what would be the max? I would intend to use the rent from 1st flat [min. 1000pcm] to help cover the mortgage. I'm not sure if being on maternity leave means you are no longer eligible for mortgage products?

I really don't know how to use the equity of a house to buy another, so i don't know if i should pursue paying off the mortgage in the first flat, or hold some money back? I am assuming it is easier to pay 1st flat in full as then i have no restricitions on letting the property as i have no bank to answer too.

I guess i am not the only one who has asked this, so if answers are provided elsewhere, please do point me in the right direction.

My ultimate goal would be to invest as much equity as i can in properties and buy to let so the mortgages are paid off by tentants.... so please let me know how i am best placed to start this dream.

Many thanks
delta

Comments

  • getmore4less
    getmore4less Posts: 46,882 Forumite
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    To use equity you have to borrow against it raise cash and use that to buy the next one.

    so best to let the flat out with the existing mortgage(save £10k ERC and get concent to let) and use the cash as a deposit forthe next place with a top up mortgage

    another option if the lender will let uou, is a BTL mortgage on the flat to replace the existing mortgage and port the current one and top up with the cash.
  • BobQ
    BobQ Posts: 11,181 Forumite
    Ninth Anniversary 10,000 Posts Name Dropper Combo Breaker
    Hello all, I am a long time reader, first time poster. I need some help as I'm not sure what I am really looking for.

    I have a flat on a 5 year fix with accord until 2015. I've been given £215K to pay of the mortgage, which will allow me to pay off the mortgage and the 10K odd ERC.

    So once this is done, I will own my property outright, i bought this for 250K and prices are still on the up in my area.

    I want to use the equity from this house to buy a second flat to live in, leaving my first flat to be let out.

    You may want to clarify this as you are talking about a flat and buying a second flat and then you mention a house. Did you mean a flat?

    I earn £42k pa, my partner earns £40K however, has just started maternity leave.

    Would we be given a mortgage for a second home worth £400K? If not 400K what would be the max? I would intend to use the rent from 1st flat [min. 1000pcm] to help cover the mortgage.

    A mortgage onthe rented flat might be more useful to you as its interest will be allowable for tax at your top tax rate.
    I'm not sure if being on maternity leave means you are no longer eligible for mortgage products?

    Well if your wife is not planning to return to work it would be a factor in your income for the mortgage. If she plans to return, it will be less of a factor depending on what maternity pay she receives and how close you are to the maximum they will lend.
    Few people are capable of expressing with equanimity opinions which differ from the prejudices of their social environment. Most people are incapable of forming such opinions.
  • Thanks guys, sorry for confusion, yes both are flats, I didn't mean to say house.

    My wife plans to return to work part time.
  • Samoht1977
    Samoht1977 Posts: 11 Forumite
    I would try and avoid paying the £10k ERC as it will take you ages to recover this money from rental on another property.

    You say you have £215k. Are you intending to stay in your current home? If the answer is yes then why not use some of the £215k as a deposit for a deposit on a purchase and therefore avoid paying the £10k ERC.

    You could buy 2 buy to let properties with that size of deposit. The amOunt of money the banks will lend is going to be determined by the rental income and nOt your income so as long as u have a 25% deposit you should be fine.

    Hope this is a good start. Please feel free to ask more questions if you need more advice.
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • Dave_Ham
    Dave_Ham Posts: 6,045 Forumite
    Tenth Anniversary Combo Breaker
    The long and short is you need to see a mortgage broker.

    You have a variety of options, although some will cost a hell of a lot more than others.

    Shooting from the hip, with the facts given the suggestion to consent to let and then use funds for deposit seems logical.

    If you try and port the mortgage and take out a buy to let, then you will be able to switch to interest only (many landlord/investors do) although the ported product will remain, the remainder may not be on a decent rate so you would need to check this first...

    Good luck
    I am a Mortgage Broker
    You should note that this site doesn't check my status as a Mortgage Broker, so you need to take my word for it.
    This signature is here as I follow MSE's Mortgage Adviser code of conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • Samoht1977
    Samoht1977 Posts: 11 Forumite
    ps. I agree with Dave Ham. See a local broker who should be able to advise you appropriately.

    We can help you online but a broker will be able to do a proper assessment of your needs.


    David
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
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