How feasible is this?

TwentySomethingGirl

My husband and I bought a flat 2 years ago with the HTB equity loan scheme. We've now found a house we like and would like to buy, but I've always wanted to keep the flat to rent out if possible.

The flat next door to ours has just been sold for £185K but I think it was under priced for a quick sale, I think £190-200K is more like market value but haven't yet had a valuation. The house we want to buy is on sale for £220K.

Our current mortgage stands at £118K so after paying the HTB loan off with a remortgage to a BTL we'd have between £34-43K equity. We would need to use some of the equity as a deposit on the new house (c£20K) and then pay the SDLT and other fees with cash savings.

My question basically is would that leave enough equity in the flat to be able to get a BTL mortgage?

I hope that all makes sense and I appreciate any help. Happy to answer any questions that might make this clearer.

Thanks

ACG

Is your mortgage plus the equity loan £118k?

If so I have worked it out that you would have around £24,500 gross to pay for estate agents, sdlt, solicitors, valaution and deposit.

That assumes the rent stacks up at 75% LTV on the flat, if you can it to stack up on 80% LTV then you would have a bit more deposit available.

TwentySomethingGirl

The mortgage alone is £118k then another £38-40k on the equity loan so if I took it to be worth £200k, £40k on the loan and £118k on the mortgage we'd have £42k equity and would need about 20k out of that. I thought with BTL mortgages they want a 25% deposit which we wouldn't have...Another flat in the building was rented for £900 a month earlier this year.


Is it likely that a broker would meet to talk through the figures even if we're not sure we'd go ahead with the purchase?

TrickyDicky101

You do realise you're going to be hit by the additional SDLT @ 3% of your onward purchase (in addition to the normal SDLT payable)? That will be a minimum of £6k (assuming you buy it for £200k). Why the desire to hold onto your existing flat?

_CC_

Hard to see how the numbers stack up unless you have a comfortable level of cash savings in addition to your equity.

Your £40k of equity is 20% of your flat's value, but then you want to take half of that out to use as a deposit on the next house?

You'll also have all the additional fees associated with purchasing and £8,500 stamp duty...

pjcox2005

Appreciate it's a side point but as well as extra SDLT, if either of you pay the higher rate of income tax, then shortly you won't be able to deduct the interest on the BTL against rental income when calculating tax as they are removing that deduction. Can increase the tax bill substantially.

TwentySomethingGirl

We want to keep it as we live in an area where the prices just keep going up and we want it as a long term investment. I realise the extra SDLT we'd have to pay and we have cash savings for that, solicitors/broker fees, moving costs etc but need to use the equity as the deposit. Neither of us are higher rate tax payers.


My main concern is whether a BTL mortgage would even be considered with a 10%, or thereabouts, deposit.

muhandis

I'm not a broker, but as per what my broker told me when I was exploring the possibility of a BTL mortgage, you need a deposit of 20-25% at the very least.

TwentySomethingGirl wrote: »

My main concern is whether a BTL mortgage would even be considered with a 10%, or thereabouts, deposit.

TwentySomethingGirl

Yeah, that's what I thought

ACG

There is one lender who would look at with a 15% deposit but unless the rent is through the roof then it rarely fits. 80% is more achievable but options will be limited.

I cant really see it stacking up to be honest. It may do but it is very ver tight.

Thrugelmir

pjcox2005 wrote: »

Appreciate it's a side point but as well as extra SDLT, if either of you pay the higher rate of income tax, then shortly you won't be able to deduct the interest on the BTL against rental income when calculating tax as they are removing that deduction. Can increase the tax bill substantially.

Tax relief is reduced to basic rate tax only.