Using current equity as a deposit

Glastoun

If we own our current property outright, could we somehow use the equity in that as a deposit for a new property? Or perhaps remortgage the current one and use the subsequent cash as a deposit?

Not looking to own two properties, but just in case we find something we like before we'd sold the existing one. This is in Scotland, if it makes a difference to being in a chain and conditions of buying/selling.

kingstreet

Can you afford two mortgages?

Take your basic salaries. Add them together.

Take your variable earnings, such as bonus, or OT and child tax credit/child benefit. Divide by two.

Add that to basics.

Work out the annual cost of any loans, HP and 5% of any credit card balances. Deduct these costs from the incomes, together with any maintenance or childcare costs.

Multiply the result by 5. This will be your maximum borrowing power and will need to be enough for both mortgages added together.

As an example;-

£30,000 and £20,000 basics = £50,000

Half of variables = £3,000

Sub total £53,000

Childcare £250pm, loan £200pm = £5,400pa.

£53,000 less £5,400 = £47,600 x 5 = £238,000

Presumably you can't get a "let to buy" mortgage because you don't intend to let the first property?

You would remortgage property one, to raise as much as you can. By getting a deposit of 40% for property two, you'll have an under 60% mortgage on property two and at that level you get the best rates.

On property one, you'd need a lender/product which has no early repayment penalties to allow you to repay the mortgage at any time, without additional charge.

There are only a handful of lenders who offer 5x income and this will depend on the term of the mortgage too. I'd seek out a good independent or whole market broker for the best route to approach this.