What to do with house value increase?

LokiOfNZ

Ok here at the quick facts;

We're both 30 and have incomes of 60k and 45k.

Purchased our 3 bed, 1 bath house in Dec 2012 for 500k.
Used a 35 year 350k mortgage at 2.5% tracker plus 200k gift from parents.
Have so far spent 40k of the extra 50k on doing loft conversion so now the place is 5 bed, 2 bath.

In the meantime house prices in our area have gone up a LOT. Spoke to the estate agent the other day and they said our house, before the loft conversion would be in the area of 700k while with the loft conversion it would be 750-775k. That might be a tad high but looking around the cheapest 3 bed in the area is now on at 625. We'd struggle to get a 2 bed for 500 now! Infact a 2 bed that we had an accepted offer on at 400k in Nov 2012 but lost due to seller pulling out is now back on at 525k.

So, it seems to me that there's now something like 100-200k worth of equity in the house that could be unlocked without changing our LTV?

Question is, how best to utilize this?
Are we going to be able to convince the bank to extend our current mortgage to unlock some equity to use as a deposit on another smaller rental property somewhere, perhaps purchased in conjunction with parents who have some cash waiting for investment?
Or would it be better idea to sell and buy smaller, trying to maximise the gap between sale and new purchase price to realise a return on investment in the loft conversion? But that obviously involves more obscene stamp duty tax which might neutralise any profit (hence the obscenity).

Suppose its a question of decreasing debt vs increasing debt but increasing property holdings and rental income. Clearly we're at the start of such thoughts but wondered what general advice there might be.

buglawton

Sounds like you wanna party like it's 2008.
PS I would delete part of the above post, show it to your mortgage advisor and they'll tell you why.

demontfort

On your high incomes I'd do the decent thing, remortgage and start paying back your parents their £200k

Halle71

demontfort wrote: »

On your high incomes I'd do the decent thing, remortgage and start paying back your parents their £200k

Do they want it back (yet)?
We are in a similar position but my parents are hoping that they will last seven years from when they gave/lent/gifted us the money. For obvious reasons.

That wasn't the question - the OP wants advice on how to maximise any return on the equity they have in their property.

jjlandlord

demontfort wrote: »

On your high incomes I'd do the decent thing, remortgage and start paying back your parents their £200k

Wasn't it a gift?

LokiOfNZ

demontfort wrote: »

On your high incomes I'd do the decent thing, remortgage and start paying back your parents their £200k

jjlandlord wrote: »

Wasn't it a gift?

Indeed, it was a gift and that money isn't part of the consideration.

AdrianC

LokiOfNZ wrote: »

So, it seems to me that there's now something like 100-200k worth of equity in the house that could be unlocked without changing our LTV?

Of course it'll change the LTV.

Currently, you have a £350k mortgage on a £750k house. 46% LTV.
If you extend the mortgage to £550k on a £750k house... 73% LTV.

LokiOfNZ

AdrianC wrote: »

Of course it'll change the LTV.

Currently, you have a £350k mortgage on a £750k house. 46% LTV.
If you extend the mortgage to £550k on a £750k house... 73% LTV.

I meant it would bring the LTV back to what it was when we purchased, ie 350 / 500 = 70% LTV

ReadingTim

Well, here are a few practical things I'd be thinking of, which might stop your plans in their tracks:

1 - could you afford the repayments in a £550k mortgage vs a £350k one?
2 - what sort of mortgag deal might you get? Bear in mind you're unlikely to get the same mortgage deal as you currently have, and will probably be looking at a 30 year term, rather than 35.
3 - could you afford an increase in interest rates in the next couple of years?
4 - your ages and incomes suggest 2 full time jobs. How do those repayments look on one income and statutory maternity pay, should children come along?