Remortgaging & BTL

kageoni

Hello all,

Wondering if anyone has been in a similar position or would be able to advise on this... I'm not really sure what the best way forward is.

I'm looking at purchasing a second property to let out. When I purchased my main property I put a large deposit into it, so the mortgage on my main property is around 170k and is on a 5 year fixed rate (2.99% & repayment).

I've spoken to my mortgage company about taking some money out of my property to put down as a deposit for the BTL second property and they've said as i'm on a fixed initial rate still i'd have to do it as a further advance on a tracker at an interest rate of 4.99%.

My question is really would it make more sense for me to remortgage my main property and borrow enough for the deposit for the second property at the same time?

My monthly repayments would be a bit lower on my main property then hopefully as i'd probably get a better rate than 2.99%. Looking at a 2/3 year fixed I've seen rates around 1.35%.

The only downside for me doing it this way would be i'd have to pay my mortgage company around £8000 to do this as i'm still in the initial fixed rate period (3 years left). But my repayments each month would be around £200 less so i'd save £7200 in 3 years, plus as i'm paying less interest each month I think i'd be making more of a dent in my mortgage and i'd be able to get the deposit for the BTL property at a much better rate.

I'm still quite new to this all and so am probably missing something big, but just wondered if anyone would be able to provide some general advice please?

silvercar

Paying £8000 to save £7200 doesn't make sense to me.

kageoni

I think it would be more than £7200 overall. I'd be able to get the deposit money for the BTL property at a much better rate as currently my mortgage company is only offering me the deposit money at 4.99% until then end of my fixed rate, then they said they'd offer it to me on the same terms/rate as my mortgage.

silvercar

How are you going to fund the £8000 penalty? Increased Borrowing?

kageoni

Yes that's what I was planning on, so that would put my monthly repayments up a bit further but I don't think it'd make too much of a difference to my monthly payments and I think with taking into account how much i'd be saving monthly on being able to get the deposit money at a cheaper rate I would still be better off in 3 years.

marsman802

Depending on your location you could theorise the equity increase into this as well.

e.g. for London I outlook 5% YoY increase. So by buying the BTL now you can increase by a % and see what looks like after three years - where I live 5% seems paltry but I like to be conservative to account for below average years

dimbo61

The whole buying a second property to rent out may struggle is you need to borrow the deposit.
Reading in the paper today about lenders wanting 35% deposits, then 3% stamp duty, set up fees, etc. Interest rate for BTL ? 125/135% rent to loan costs etc