Hypothetical Q - Releasing Equity from a BTL

blahblahblah85

I tried to google my question(s) but I think I need clarification as my head is spinning a bit

Say person A purchased a 2 bed for £140k with £80k deposit
lived in it for 2-3 years, could they then turn their house into a BTL property and release equity to purchase 2nd property (to live in) ?

From what I found, I think you would have to remortgage the property, is this possible after just 2 years? And is it 25% equity that needs to remain in the BTL property?

I understand that you would then need additional money/deposit for the 2nd/larger property....thanks in advance !

blackshirtuk

In your scenario, £35k would need to be left in the property to form a 25% deposit. (provided the property value hadn't increased in the meantime)

this would release £45K to be used as a deposit for the 2nd property

blahblahblah85

Okay thanks for confirmation! I take whether the property increased or decreased, 25% would still need to be remaining in the property...

And what about affordability? Will they offer the 2nd mortgage calculated the same way as before? i.e. based on income & deposit alone or will having the BTL mortgage affect how much they'll lend you ?

kingstreet

BTL or LTB Remortgage

Some lenders call this scenario a let to buy. However, it's pretty much the same. Maximum loan to value will be 75% and the let will need to "wash its face" with the rent being at least 125% of the monthly mortgage interest at 6% per annum.

So, you'll be able to borrow the LOWER of 75% of the property value or the mortgage amount calculated when the rent must be at least 125% of the monthly mortgage interest.

As an example, a property worth £140,000 would need to be let for £657 per month for you to raise the max LTV 75% of £105,000. If the rent is lower, you'll have to borrow less. If it's higher, great but you'll still be limited to 75%.

Second property purchase

You will be able to borrow usual amount from many lenders. As long as they are happy the let is self-financing you shouldn't be disadvantaged. Avoid lenders who assume you'll have no tenant and want your income to cover both, as you'll be able to borrow a lot less.

A broker will be best-placed to plan this with you to ensure you maximise your chances on both sides of the equation.

blahblahblah85

Thank you Kingstreet, great direct info as always!

blackshirtuk

BTW, still waiting to find out what "person B" was doing! :beer:

dimbo61

You could be clever about this and get an Offset mortgage!
put down 25% deposit and get mortgage deal.
Keep the rest of the money in the offset and when you have found the right property you have your deposit sitting in the offset.
In 2 years time if you can get a 75% LTV BTL mortgage you have more than that in the property ( if house prices stay stable)