Mortgage to Buy To Let - Prep

toonit

Hi Everyone,

I used this forum for mortgage advice last year and found it really helpful so here goes with another query..

I bought a house with a 10% deposit last year (July). Its not as big as we would like and we plan to upgrade to something more expensive in about 18 - 24 months time.

We would like to keep the house and switch it to a buy to let mortgage.

I was just wondering what we would need to do to make the switch to buy to let ? I have heard different things about LTV etc but im not sure how it works

We'd ideally like to take the deposit we put down on the property out to put towards the deposit on the new home we buy.

Hope you can help !

amnblog

You aren't going to be taking the little equity you have out as deposit for the new property.


Also, keeping what you have increases the stamp duty land tax on the new purchase by 3%.


I suspect a sale and new purchase will be your more likely option.

toonit

amnblog wrote: »

You aren't going to be taking the little equity you have out as deposit for the new property.


Also, keeping what you have increases the stamp duty land tax on the new purchase by 3%.


I suspect a sale and new purchase will be your more likely option.

Should have put a little more detail on:

We will have spent around £10k on improvements to the house. Plus we will be 2 years down the line from original purchase so I am hoping that this will add to the equity on the property.

Selling isn't an option. If we cant make it happen this way we will wait until we can.

We spent £168,500 on the house.
£10k on improvements and expect it to be worth £185 - 190k at the point in which we wish to switch to buy to let mortgage

_CC_

You'd have little equity for two houses unless I'm missing something (additional savings etc?).

You may possibly have, what, £35,000 of equity in the current house if you can achieve your target valuation.

You say current house is too small, so I assume you'd be looking at a new house at £200k or more. A £200k house will cost you £7,500 in stamp duty alone, after next month. Plus you'll have all the additional costs of moving, so you may be left with around £25,000?

*~Zephyr~*

Most BTL products require a 25% deposit.

Have you overpaid on your mortgage? The first two years of a repayment mortgage don't really make a dent in in the capital, so you'll need to have made overpayments to improve your LTV.

You bought the house for 168,500 with a 10% deposit of £16,850?

Purchase price: 168500
Deposit: 16850
Mortgage: 151650


Assuming the mortgage is at the same level and that the house is now worth £190k, you have equity of:


190000 - 151650 = £38350 which is 20% equity.

You will need to have reduced the mortgage by £9150 to have 25% equity.

Mattygroves2

You are going to need at least 20% equity in the existing house in order to convert to BTL so your mortgage would have to be less than £156,000 at the point you wish to move assuming your valuation is correct at £195k. Your rent would also have to be about £975 a month to make the figures work.

It doesn't look like you will have no equity to release to fund the deposit on your new place or the costs of buying the new property which will include the 3% extra stamp duty. So you need to save as much as possible to pay for the move.

Why not sell and trade up as most people do ? Then you could use your equity in the existing property as the deposit on the next one and avoid £6k of stamp duty (assuming your new house is £200k).

_CC_

Mattygroves2 wrote: »

...avoid £6k of stamp duty (assuming your new house is £200k).

New stamp duty would be £7,500, no?

It's not 3% on the entire price. It's an additional 3% on the current slabs, so 3% for the first £125k and 5% on the remaining £75k.

kingstreet

£200,000 purchase.

First or only residence = £125,000 x 0% + £75,000 x 2% = £1,500.

Second residence = £125,000 x 3% + £75,000 x 5% = £7,500.

Ergo - 3% surcharge = £6,000 (£200,000 x 3%).

Mattygroves2

_CC_ wrote: »

New stamp duty would be £7,500, no?

It's not 3% on the entire price. It's an additional 3% on the current slabs, so 3% for the first £125k and 5% on the remaining £75k.

The extra due to it being a second home would be £6,000 ie. 3% of £200,000.

_CC_

Mattygroves2 wrote: »

The extra due to it being a second home would be £6,000 ie. 3% of £200,000.

Ah extra stamp duty, understood

pjcox2005

I know people are on the negative side here, but also to be aware if you are a high earner then the interest relief previously given is being phased out, so you may end up being taxed on the full property income and therefore making less than the interest charged by the mortgage company.