Secured loan for deposit for another house

michaelmc_2

Hi all,

I'm just looking for some advice, I was thinking of selling my flat to release the equity to buy a house.

However just been thinking that I could take out a secured loan on my flat and use this as a deposit for a house and rent my current flat.

Just wasnt sure if financing the deposit for another house purchase using a secured loan would be looked at adversely on a secondary mortgage application?

The rent I could get on my flat would comfortably cover the loan repayment + my current mortgage.

Thanks

thelem

How much equity do you have in your current house? I'm not very experienced in this area, but I wouldn't have thought it would be a problem if both properties had decent equity. Also, secured loan or remortgage? Remember you'll need to convert the flat to a buy to let mortgage anyway.

kingstreet

A secured loan would be one option. This would sit on top of your existing mortgage (for which you'd need your lender's consent to let). The cost of a secured loan would be higher than the mortgage equivalent but may be useful if you have a very cheap mortgage, or face large early repayment penalties.

If neither of these apply, you may find it cheaper to remortgage to a new lender on a buy to let type product, raising enough to repay your existing mortgage and deposit for the new property.

Remember, a lender will typically want you to borrow no more than 75% of the value of the property and will wish to see the rental income exceed 125% of the monthly mortgage interest, assuming an annual rate of around 6%.

michaelmc_2

Thanks for the replies.

My current outstanding mortgage is £55k, the home report value is £85k although I dont see the flat selling for more than £75k, although it is in Glasgow in the 2014 Commonwealth games area so the prices may rise, current properties in the development rent pretty quickly at around £500-550 per month.

The house I seen is £110k, I would be looking for a secured loan for around £12k to use as a deposit hopefully fully for 90% LTV mortgage or I could at a push perhaps stretch to 85% LTV.

My mortgage is currently £300 although the term ends in May when I can remortage, I reckon I will have penalties of around £1k just now if I repaid early.

Thanks again

kingstreet

I suggest you investigate the possibility of getting a 90% mortgage on a purchase with a let property with both a mortgage and a secured loan in the background before you do anything else.

Some lenders will deduct such costs from your income before calculating what you can borrow for the purchase and others will not want to lend as much as 90%.

It may be worth talking to a local independent or whole market broker before you commit to any loan applications. Comment re the ERP ending in May noted. It may be worth waiting 'til then as more options will then be open to you.

Fire_Fox

michaelmc wrote: »

I'm just looking for some advice, I was thinking of selling my flat to release the equity to buy a house.

However just been thinking that I could take out a secured loan on my flat and use this as a deposit for a house and rent my current flat.

Just wasnt sure if financing the deposit for another house purchase using a secured loan would be looked at adversely on a secondary mortgage application?

The rent I could get on my flat would comfortably cover the loan repayment + my current mortgage.

My current outstanding mortgage is £55k, the home report value is £85k although I dont see the flat selling for more than £75k, although it is in Glasgow in the 2014 Commonwealth games area so the prices may rise, current properties in the development rent pretty quickly at around £500-550 per month.

The house I seen is £110k, I would be looking for a secured loan for around £12k to use as a deposit hopefully fully for 90% LTV mortgage or I could at a push perhaps stretch to 85% LTV.

My mortgage is currently £300 although the term ends in May when I can remortage, I reckon I will have penalties of around £1k just now if I repaid early.

Thanks again

Do you have enough money for all the fees associated with buying? Do you have consent to lease from the lender on your flat and do you require the consent of your freeholder too (check your long lease, don't assume based on your neighbours)? Have you factored in income tax and capital gains tax?

Do you have three months mortgage payments, buildings insurance and service charges for both properties set aside in case you are made redundant, fall ill or get injured and cannot work, you have tenants that don't pay rent? Benefits pay nothing for three months, then they take your extra income into consideration, and you cannot guarantee being tenanted all the time. Do you have additional funds in case both properties need urgent maintenance simultaneously (eg. winter central heating breakdown). What about if your freeholder decides to consult on major works, can you afford that too?

To be a viable BTL you need to cover a lot more than the mortgage and loan, you should be looking to cover ALL your costs -administration, vacancies, repairs and maintenance, taxes, buildings and landlords insurance - and still turn a profit.