How does using Equity from current property work to buy another property?

getmore4less

LiveOnce wrote: »

I came across this option when I was talking to a mortgage adviser. He was using the scenario of a currently mortgaged property and using that property's equity to buy another.

He tried his best to explain it but I couldn't quite get my head around it.

Could anyone please explain with an illustrated example how it works please?

Equity is what you nominally own of an asset and if you liquidated the asset it is what you would end up with in cash.

This is not the same as the amount you can borrow against that equity to convert into cash.

What happens when you convert some of that equity into cash by borrowing against you no longer have the equity in that asset.


When you buy another asset with that cash you then have equity in that asset.


There is a serious issue here as between you and your adviser you failed to grasp what is a fairly basic concept, best to work out where the shortcoming is before you move forward.

LiveOnce

This has been really useful, I finally understand with the information. Thank you all!

And no I am not looking to become a buy-to-let person yet don't worry :-)

Grant_Urismo

This is actually a bit more complex that some people are saying, as you're trying to buy a second property.

I guess you don't have a deposit to buy the second house, which is why the discussion on using your equity happened?

If so, here's an example to explain the process:
Your house is worth 500k, and your mortgage is 150k, so you have 350k equity, but no deposit.
If you want to buy another 400k house, the bank will say no, you need a 100k deposit.

If you say the the bank, can I remortgage my first house, I want to increase my mortgage by 100k, they will say yes, as you will only be borrowing a total of 250k on that house. You then take that 100k and say I want to buy another 400k house, here's a 100k deposit, they will say yes.

kingstreet

FWIW, the options in such circumstances are;-

further advance/further borrowing from existing lender
second charge loan from third party finance provider
remortgage existing mortgage and borrow more from new lender.

If this was effectively a "let to buy" there will be issues with some lenders over the purpose of the funds. For example, Nationwide won't lend for the deposit on a second property, you have to remortgage to its BTL arm, The Mortgage Works.

Once that has realised the required deposit, there's then the matter of the new residential mortgage for the new purchase.

lishad

Hi I came across this thread as I recently found out about way to get a second property using equity of my existing property. First I was going to sell and buy a better place but second property sounds clever thing to do. I am done with my mortgage payment and want to buy second property and rent the existing flat. I am aware about 3% stamp duty but in the long run I will be saving money as a rental income from one property. How do I go about to get started? Should I go direct to bank to ask about this or mortgage broker? Thank you.
My property is worth around 350-375K. What I want to get is around 450-475k.

hazyjo

lishad wrote: »

Hi I came across this thread as I am recently found out about way to get a second property using equity of my existing property. First I was going to sell and buy a better place but second property sounds clever thing to do. I am done with my mortgage payment and want to buy second property and rent the existing flat. I am aware about 3% stamp duty but in the long run I will be saving money as a rental income from one property. How do I go about to get started? Should I go direct to bank to ask about this or mortgage broker? Thank you.
My property is worth around 350-375K. What I want to get is around 450-475k.

Please start a new thread


Ta.