Existing house rented out - looking to buy 2nd house for me

the_salmon

Hi all, advice welcomed.

I have a house which I bought and lived in until I changed jobs so ended up obtaining permission to let it and now rent the house out via an estate agents. The house is probably worth £70k and I have £53k owing at present, the rent more than covers the mortgage.

In the current place where I live I currently rent, but am now looking to buy.
Here is my problem, as I want to keep my house to rent out, but don't have any cash to be able to put down as a deposit for a second house.

Are there any solutions as to how I can realise the equity in my existing house (I am not even sure what that means myself?!?)?
I know from an affordability point of view I am comfortable with what the potential monthly repayments could be (my rent is quite high at the moment), and my salary is relatively decent.

Any advice/suggestions or questions to ask would be welcomed.

Cheers

kingstreet

Unfortunately, your existing mortgage is already at the maximum loan to value for a BTL product, so I can see no purchase option for you.

You need to sell the first property.

the_salmon

many thanks for that, I think I had mentally prepared for that response.

So in terms of solutions (and trying to keep the existing house), would my best strategy be to pay off more of the existing mortgage (as slow as that may be), to give me some flexibility on acting as a deposit on a new house?

kingstreet

No. If keeping the current property, any savings should be kept as liquid capital if they will be needed for a deposit. Paying it off the existing mortgage is only helpful to you if you plan to sell the property.

If you had more equity now, you could have remortgaged the property onto a BTL property to raise the deposit. As you don't, the saving option is better.

Don't forget, if you reduce the mortgage, the interest falls and leaves you lower expenses to offset against the rental income for tax purposes.

Thrugelmir

Whether you pay down the mortgage or save the money depends on the interest rate you are paying. Normally the best route is to pay off the mortgage. May start slowly. Over time the saving in interest will grow.

kingstreet

Thrugelmir wrote: »

Whether you pay down the mortgage or save the money depends on the interest rate you are paying. Normally the best route is to pay off the mortgage. May start slowly. Over time the saving in interest will grow.

Normally, I'd agree. However, if the objective is to save a deposit for another property without selling the current one, the savings would be lost to that purpose.

Effectively, he'd be paying down the existing mortgage just to create enough equity to borrow back upto 75% again.

the_salmon

Cheers for that.

Im going to ask the question of how much I can withdraw of my overpayments on the existing mortgage and that will give me a start point of cash.

Having had a quick hunt round there is the potential of a 95% mortgage with a couple of lenders, although not on the most favourable rates, providing I can afford the monthly repayments (which shouldn't be a problem) then I may be able to pull together a few grand (we are talking less than £10k to act as a deposit).

I am not convinced of my discipline to be able to save for a year or 2!

also the advice about overpaying is useful, this is my 1st year renting the house out and havent done a tax return yet, I didnt realise overpaying would have a negative effect when it comes to tax, though I have had quite a few outgoings on the house which may balance it out.

Thanks again.

kingstreet

You are unlikely to get a 95% mortgage with a let property in the background. The lenders who will ignore the existing mortgage won't go past 85% to 90%.

Overpayment borrowback may not be an option while the property is let.

the_salmon

Thanks, I have withdrawn against the mortgage already to do some home improvements before letting it out to my existing tennants. But its a conversation to have with my mortgage company.

spoke to my estate agents who manage my property for me, they advised me to go to a financial advisor and to ask the question of putting up my existing house as collateral to enable a second mortgage, no idea how common or easy this is?

kingstreet

I don't know anyone who cross-charges across two properties now. TBH even when that was common, the amount of equity you have in the first property wouldn't be enough to make the proposition worthwhile.

Ask around a few brokers and see what comes back. Pay fees only on completion though. A broker wanting an upfront fee from you has little/less incentive to actually complete a deal for you.