Is this possible...?

chocaholic110

Please don't shout at me if this is a really stupid question or a bad idea.

We currently are selling our house. It's on this market for £90,000. We owe £33,000 on the mortgage. The idea was to sell it and use the money for a deposit on a bigger house.

However, after this OH would like to buy a small house to rent out, with the idea that we could sell it many years down the line. It seems silly though to sell this house, only to buy another one.

Would it be possible to remortgage this house as a buy to let, for example for £70,000 and use that as a deposit on a house for us. Is this a good idea? A bad idea? Or even impossible?

Please give the benefit of your wise advice before we look into itany further. Thanks in advance

pania

Hi Chocaholic,

Firstly in line with the boards rules i have to say anything i say here shouldn't be construed as advice as i don't have all your information, but anyhoo...

Yes you could remortgage your house to buy to let, provided that the rental you will get for the property will cover between 115 and 125% of the monthly mortgage payment, deending on which lender you use. this is generally known as a let to buy, ie your letting out your own house in order to buy another.
Also if the property was untenanted for any reason for a period of time could you afford having two mortgages around your neck? this obviously would depend on your financial circumstances which i have no knowledge of.

It would probably be an idea to look at your reasons for moving? if it was to upgrade to a larger house, would it financially be viable, you may be better off selling your house, using some of the equity as a deposit to buy a small house in a highl rentable area and buying yourselves a house with a smaller deposit.
Bottom line is this. you need specified financial advice from a mortgage advisor that can go through all your circumstances with you. Yes it is certainly possible, just make sure you have all the facts before making a decision.

Let me know how it goes.
Best regards
P:D

chocaholic110

Thanks for that.

Anyone else have any thoughts / advice?

Anyone see any potential pitfalls and problems...or any advantages?

dwsjarcmcd

As has been said previously, it depends on what your objective is. If it is capital growth, rather than income, then the primary pitfall is that you are at the mercy of house price inflation to achieve this. Provided you are aware of this, and that you may not make as much/any money or even a loss, or hold on to the property longer than you really want, then that's fine. If you are looking at this as a no lose gamble, then I feel that may be a mistake.

Other things to consider are selling costs (Estate agent fees, solicitors) and the effects of CGT (Capital Gains Tax) although if you do have to pay this, then by definition you have made a profit!!

David

silvercar

I think its a very good idea. by using your existing home as a let property you save the estate agent fees on selling it and you have further reliefs on CGT as it was once your home. Practically it works too, you can start searching for tenants earlier and you know how everything works.

chocaholic110

Thanks. We would not be looking to make a lot of money, just the idea that we could start looking for a new house for ourselves without waiting for this to sell first.
However looking at similar remtal properties in the paper seems the rent would only be about £375 a month. Wondering if we wouldn't be able to get a buy to let mortgage as mortgage payment would be more than that. we could easily cover the difference but would that be allowed?
Any further ideas?

JoeK_3

You would be looking for a let to buy.

Based on the rental income of £375pm this equates to £75,000 x 6% = £4,500 divided by 12 = £375 pm on an interest only mortgage.

So, you would need to leave £15,000 equity in the property for it to work.

JoeK