Releasing equity from property to buy another

LRBritain

Hello.

I am looking for some advice.

Last year I renovated a property which has been on the market for a few months now, it has received some interest but nothing serious yet. I am looking to buy another property as soon as this sells as at the moment I am living with parents.

My plan was always to sell the one which is for sale now and then have the cash to buy one to move in to but failing that and it does not sell would the following solution be possible?

The house is for sale now with a guide of 90-99k, the agents think I can get 93k but I think realistically 90k.

The mortgage on the property is £51000 with monthly repayments of £220. The property will rent out for £495 per month easily, I know the area well and friends/family have similar properties rented out at this figure.

Would it be possible for me to take around 22-25k equity out of this property and put the current mortgage on a BTL and then me purchase a property on a normal residential mortgage?

It is with coventry building society and the mortgage was taken out around June last year.


Thanks in advance

Thrugelmir

Potentially yes. Equity can be released. Market is slow at this time of year and will pick up shortly. Little point in rushing into something that wasn't your intention.

getmore4less

Would it not have been better to have moved in while doing it up anyway to avoid CGT/income tax on the property development business

pjcox2005

getmore4less wrote: »

Would it not have been better to have moved in while doing it up anyway to avoid CGT/income tax on the property development business

If the intention was always to renovate it for sale, then I believe it will always be classed as income rather than capital gains so moving into the property wouldn't have any impact on the tax position as principal private residence relief wouldn't be available.

RhysHSCC

Hi lrbritain

It is something they can definitely look at.

Coventry's max BTL ltv is 80% currently so assuming your prop was valued at 90k, your could borrow up to 21k incl fees.

Depending on which ltv product you go for will limit your borrowing, as well as what the property is valued at.

amnblog

I am assuming you have the property on a residential mortgage with CBS. They do not allow residential properties to be remortgaged as buy to let.

They may be solutions with other lenders however.

RhysHSCC

Coventry can do this

It would be a case of calling up to speak to one of their MA's and doing their affordability assessment as it would be a regulated mortgage. It would be a product transfer from resi to BTL. And also a simultaneous further advance.

antrobus

pjcox2005 wrote: »

If the intention was always to renovate it for sale, then I believe it will always be classed as income rather than capital gains so moving into the property wouldn't have any impact on the tax position as principal private residence relief wouldn't be available.

Technically, I believe that to be correct. Although people have been known to have 'gotten away with it'. And generally speaking, if you do want to claim principal private residence relief, you do actually have to live in the property. So if you do want to play that game it is normal to put yourself on the electoral register at that address, and so forth.

In any event, since the OP know wants to rent the property out, arguing that the whole things wasn't an 'adventure in trade' is gonna be pretty difficult.

I would suggest that the OP get themselves an accountant. They will need to register for self assessment and work out the base cost of the asset etc.

antrobus

LRBritain wrote: »

...Would it be possible for me to take around 22-25k equity out of this property and put the current mortgage on a BTL and then me purchase a property on a normal residential mortgage?...

If the 'realistic' valuation is £90k, that would mean pushing LTV to the 81%-84% range. That would limit the number of lenders and products available. And be more expensive.

LRBritain

Hi everyone.

Apologies for the delay in replying, I have been a bit busy lately.

Having spoke to CBS they said that I can switch the mortgage to a full BTL rather than consent to let, based on the rental figure it is fine and there is only a £100 admin fee. Doing this would release around £19,500 equity at the moment.

What I am planning on doing is the following;
The property currently has a loft conversion which was done a few years a go to a high standard with proper stair case, having had the property checked (just waiting for building regs to confirm) I can declare this room as an additional bedroom as long as I put up a false wall, fire door and alter the stair case slightly, it will cost around £2000 for the work but will being the rent to £550 per month and raise the house price to around £100-110k.

My plan is to get this work done ASAP and aim to rent it out from May/June once complete. I can then take around £30k (?) equity from the house in July/August to purchase a new home for my self.

Will there be CGT to pay on the equity or is this just when you sell?

Also to avoid the new stamp duty would it be possible to set up another LTD company to put this property in to and then reduce my stamp duty on the second purchase? I will be buying more rental properties in the next future so always planned to go LTD, maybe doing this sooner will benefit me?

Thanks again

Butti

What would your solution be if everything went belly up in say 4 months time or if your first tenant stopped paying rent? A crash is being fairly widely predicted.