Mortgage against unencombered property

jm9481

Hi all, hoping you can answer a quick question.


I own a property with no mortgage worth approximately £800k. For various reasons, it is no longer viable for me to live in this property and I would like to rent it out. Can I borrow against the property to buy another property for me to live in? If so, how much would a bank typically lend me?


I imagine I will roughly break even on renting out property 1, so there will not be much rental profit to use to fund repayments the purchase of property 2. Is the mortgage I can get towards property 2 still limited to 4-5 times salary, or can I get extra by taking some funds out of property 1? I have no debts other than student loan.


Happy to provide any additional information.

Typhoon2000

The mortgage you can get for property 2 will with most lenders be no different if you had property 1 or not.
Property 1 will be BTL mortgage and the maximum you can borrow will depend on anticipated rental. You can do what you like with the funds, including using it towards property 2.
You can claim interest relief up to the value of property 1 if you are borrowing to buying another property to live in, not only up to the new mortgage on property 1.

jm9481

Ok thanks. I imagine I will only be making £100-200 margin per month on the rental property once the agent fees have been factored in, and really I should reserve this for repairs and maintenance costs (though I could possibly bear these out of my normal salary). I imagine therefore that I cant borrow much more than the usual multiple of salary. Is there any way you can think of that I can utilise the unencumbered property effectively (without selling)?

saajan_12

Assuming you can sell the current property to pay off a BTL mortgage on there if necessary / when its owed, you should be able to borrow an amount on an interest only basis, limited by:
*sum borrowed upto 75% of house value so £600k
*monthly rent expected atleast 125% of monthly mortgage payments

Further, you can take a residential mortgage on the new property based on your other (non rental) income, using the borrowings against the rental as your deposit.

If you need a specialist mortgage outside this, you should speak to a broker.

G_M

You'll be able to borrow based on your income, with a cap based on the £800K value of the property.

But why not borrow against the property you buy?

Either way, you'l have to pay the additional SDLT for a 2nd property.

Your overheads will be greater than you've listed - especially tax on the rental income. See also:

* New landlords: advice, information & links

* Letting agents: how should a landlord select or sack?

AdrianC

Does it even make sense to rent this £800k property out...? Or would you be better selling it, and investing elsewhere?

5% yield on an £800k property is £3,300/month rent. That implies some pretty damn demanding tenants, quite probably corporate rentals and very likely a high turnover. That implies high maintenance/decorating costs.

You say £1-200/mo "margin" after mortgage is paid and agent fees are paid. Repayment mortgage? Don't forget you can't offset repayments against income for tax. If interest only, what's your repayment strategy? Don't forget that, if you're a higher rate taxpayer, you can only offset interest against basic rate tax.

If you're going to say "But I don't want to sell it" for sentimental value reasons, then that's just another (overwhelming) reason not to rent it out. This should be 100% an emotionless business decision.

This really does have the potential to be a real can of worms...