Equity Release??

joAnn

I completed on my flat in Dec 06. I paid £227,500. I've since had the flat converted to 2 beds by splitting the large kitchen to form a new bathroom and creating a new bedroom in the old bathroom.
I had a valuation carried out recently and to my great delight, was told the flat is now worth £315,000, an increase of approx £90,000!!!
One of the agents mentioned something about equity release and using this to buy a second property that I live in or rent out. I didn't quite get it!!!
How does this work? Is releasing the equity freeing up mortgate money that I have already paid off? Or is it related to the current value?
Since purchasing this flat, my salary has decreased enormously due to a change in my working hours. I currently earn approx £23,000. Mortgage outstanding is approx £140,000. I put down £30,000 deposit and have a 2nd charge on the property - roughly 33% key worker equity loan. They will not claim anything of the value I have added by doing the conversion.
Can I possibly buy a BTL property or use this equity to good effect in a different way? Any other suggestions?

epz_2

why not just sell move to a similar unconverted flat and knock off 90k from the mortgage.

pickles110564

Above advice is good, now you know what type of property to look for do it three or four more times ,become mortgage free on main then start to look for BTL's so that if anything went wrong you can just throw in the keys and keep your own home

Rick62

pickles110564 wrote: »

Above advice is good, now you know what type of property to look for do it three or four more times ,become mortgage free on main then start to look for BTL's so that if anything went wrong you can just throw in the keys and keep your own home

What are you talking about? If anything goes wrong with a BTL you think the lender will just write off the mortgage? Of course not, they'll come after whatever other assets you have, including your main home.

I wonder how many other BTL 'investors' think they could walk away if anything happens. In the last crash people handed in the keys to their main house and did sometimes 'walk away', the difference being they had no other assets worth chasing by the banks.

mightymouse

Hi

just to add a small point, lenders then have (6 years for contact) but 12 years to persue any shortfall just when people have usually forgotten all about it.

By then they may have a new house different partner etc but same old debt..

(with added interest of course - mounting without payment?)

I doubt if btl mortgage would have any rules for contact so just 12 years then to persue debt.

Debt_Free_Chick

joAnn wrote: »

I completed on my flat in Dec 06. I paid £227,500. I've since had the flat converted to 2 beds by splitting the large kitchen to form a new bathroom and creating a new bedroom in the old bathroom.
I had a valuation carried out recently and to my great delight, was told the flat is now worth £315,000, an increase of approx £90,000!!!
One of the agents mentioned something about equity release and using this to buy a second property that I live in or rent out. I didn't quite get it!!!
How does this work? Is releasing the equity freeing up mortgate money that I have already paid off? Or is it related to the current value?

It's a suggestion that you take out (another) mortgage, based on the current value of the existing property. That would give you cash, which you then use to (part) fund the purchase of another property. You might need (yet) another mortgage to give you enough money to buy property number 2.

If you buy anther property, you would then let that property, in the hope (!) that you make some money.

You might make money - but this depends on whether you can release sufficient cash (£90k?) to buy another property outright. If not, then you need to factor in the cost of repaying the mortgage on the second property (i.e. the mortgage you need, in addition to the deposit you have by raising a further mortgage on the first property).

Against the costs of additional mortgage(s), you need to offset the rental income you would (could?) receive, when you let the (second) property.

You also need to factor in other costs of letting the (second) property:-

• Voids - periods when the property is vacant e.g. in between tenants or simply if the property is not let (number of reasons, including overpricing the rent!) and when the tenant "does a runner" and you can't trace them and/or recover the arrears!
• Maintenance - you are still responsible for the general upkeep and maintenance of the property, including wear & tear on the fabric of the building and, if relevant, any F&Fs if you let "furnished".
• Insurance - you are still responsible for insuring the "bricks & mortar" as you own these. You might also want to insure certain contents, if you let "furnished", but you might want to insist that the tenant insures them. If so, you might want to consider checking that they have sufficient insurance.
• Hassle - Do you want to be a Landlord, with all that entails? If not, then you will need to pay a letting agent. But be aware that they will not deal with all the hassle, unless you "pay the price". And, even then, there are bound to be issues that they will not or can not deal with.
• Income Tax - you will pay tax on the rent you receive, but you will be able to deduct certain expenses. Nevertheless, you will not get to keep 100% of the rent (unless you are running at a loss - in which case, you will have the fund the loss, rather than the tax).

Of course, you can buy a second property and leave it empty - if you can afford that! Why would you do this? Simply in the hope that you would benefit from the increase in value and that this would recompense you for the costs you faced, whilst you owned the property.

Since purchasing this flat, my salary has decreased enormously due to a change in my working hours. I currently earn approx £23,000. Mortgage outstanding is approx £140,000. I put down £30,000 deposit and have a 2nd charge on the property - roughly 33% key worker equity loan. They will not claim anything of the value I have added by doing the conversion.
Can I possibly buy a BTL property or use this equity to good effect in a different way? Any other suggestions?

Ouch - you need to research your ability to buy a second property. If you need a mortgage (in addition to releasing equity from your current property) then the lender will expect to let the second property - your salary will not be an issue. But the anticipated rent, will be. You will then need to seriously consider what you will do when the property is empty i.e. not let.

HTH

Addiscomber

[FONT=&quot]For goodness sake, if you don't understand how Buy to Let works then don't get sucked in, or you may end up losing everything. It is not a licence to print money. Do some proper research, and do not rely on advice from posters here who may or equally, may not, know what they are talking about.[/FONT]

Romani_Ite_Domum

You earn £23K and you have a £140K mortgage.
Why on earth would you want to increase this debt?

phlash

Romani_Ite_Domum wrote: »

You earn £23K and you have a £140K mortgage.
Why on earth would you want to increase this debt?

I didn't even want to bother posting on this, but I will now....

2nd the opinion above.

Add to it: Are you mad?

[Deleted User]

OP you are in too much debt as it is dont be crazy and make yourself bankrupt! You havent done any research whatsoever and are thinking property only goes up and being a landlord will make me a millionaire.

You need to actually reduce your mortgage from 140K to 80K otherwise youll be in a world of pain. Id suggest selling up and downsizing as the only equity release you should be looking at.

noyk

Equity release = loan secured on your home!