How do i access equity to buy 2nd flat

robpaton

I am in my 40s, living in london and working in the arts and have only recently (one year ago) managed to buy a flat due to combination of a family inheritance and a couple of unusually well paid jobs. I bought the flat for 195,ooo and having spent about 30,ooo on renovation it is now worth about 260,000 possibly a bit more. My income is very unpredictable and relatively low on average - about 15-20,000. I have had some very well paid jobs in my time, but these are impossible to predict or rely on. My mortgage is 50,000 and I have 8,000 on 0% cards for next year (a legacy of the renovations) giving me, I assume, equity of about 200,000. A friend has advised me to use this equity to purchase a second flat to rent out which I am interested in exploring. How easy/possible is this likely to be and what are the key points I need to consider before embarking upon such a venture?
Any advice most welcome.

BitterAndTwisted

You could remortgage the flat you live in to raise a deposit on a BTL mortgage. This will require a deposit of 25% and a prospective rent of 125% of the mortgage-payments.

Think very carefully about how, if the S should ever hit the fan, you would be able to pay two mortgages on your income. BTL is not a risk-free venture, even in London. All it would need is for you to find yourself one dodgy tenant who stops paying the rent, it takes you six months to evict them costing thousands, and they trash the place in the process. It doesn't happen often, but it does happen. We've read threads about this more than once on here.

tim123456789

Sorry to be rude, but I think your friend is an idiot.

You are living at the margins of what you can afford. Taking a 200K investment gamble is a nutcase thing for someone in your position to do.

tim

hazyjo

I doubt very much you'd actually achieve £260k and the value could well be placed at £250k or less - because of the stamp duty threshold at £250k. Very hard to get more than that £250k and can affect properties into the £270ks and even £280ks, etc.

Agree with tim - seems like an enormous gamble! If you have a £50k mortgage already, it's unlikely anyone would want to lend you more.

They will also take the £8k debt into account and, even though currently on interest free cards, will possibly deduct that and more to allow for future interest as it's still a risk for them as there's no guarantee you'll clear that before the higher interest rate is applied.

Jx

robpaton

hmm. Thought that might be the case. Thanks for the advice.

rossontheweb

I think it sounds like a good idea - surely your current 50k mortgage is very servicable (especially when you compare the cost of renting a similar flat in London) and you'll be running at 25% or less LTV.

The wobbles over BTL are true - they take a lot of work and 1 property wont really make an income once you add in all the extras, repairs and lost saturdays/evenings sorting things out. PLus you'd be putting yourself at the possibility of a London house price crash (not unlikely seeing as its in a massive bubble!)

You could -
1. give it a go but buy in a busy student town outside of London
2. remortgage for a manageble monthly payments and invest the cash around a spread of investments, ISAs, funds, hey, even premium bonds.
3. Sell your flat, pocket the cash and find somewhere cheaper to move to while keeping the cash somewhere safe to tide you over as you persue your creative career.

Just a couple of more positive options for you - i'm in a similar position so understand your dilemma

Good luck!!