Property Options Question

JoeT95

Hi All,

I'm 21, I own my 1 bedroom flat in my uni town outright and I'll be finishing my degree next year. I'm already looking at up-scaling to a 2-3 bed house in the area and was wondering what my options were regarding getting a mortgage with the help of the flat.

Should I rent it out to help with mortgage payments and would the flat act as collateral?
Is it possible to release equity from it when I'm this young?
If not, is it best to simply save for the deposit at the moment?
Am I too young to be accepted for a decent mortgage?

Apologies for the newby questions!
Cheers,
Joe
:beer:

Cakeguts

Sell the flat and put the money that you get for it into the new house.

Crashy_Time

https://www.propertytribes.com/understanding-the-impact-of-pra-on-landlords-t-127627442.html

Crashy_Time

Could you rent it to the Uni, or do they all do their own accommodation now?

Pixie5740

You're post doesn't make it entirely clear what it is you want to do. I think you are asking if you can use some of the equity in your flat to purchase a house. Yes, people can do that using a Let-to-Buy mortgage which allows up to 75% of the equity to be released. Note that keeping hold of the flat means you will pay the higher rate of SDLT when you buy the house. You will also need to use at least some of the rent from the flat to pay the mortgage you will now have on the flat.

21 is hardly young, you've had access to credit since the age of 18. You should be more concerned about affordability and your credit history.

Red-Squirrel_2

If you rent the flat out, you'll have a 2nd job as a landlord in addition to whatever job you start after you graduate. It might be time consuming and expensive. Especially renting to students who are not known for looking after the places they rent.

saajan_12

Option 1: Raise LTB mortgage on flat for 75% of value and use this + savings as a deposit for new property
-> higher SDLT due on house purchase at an extra 3% of the purchase price on top of the standard SDLT
-> cost and timing of two surveys and mortgage applications
-> if/when you sell flat, you will be liable for CGT for the portion of time you don't live there
-> while you can 'release equity' from the flat, you will be paying interest on these funds usually at the higher BTL mortgage rates, which will massively eat into any rent income
-> time to manage the property, deal with repairs / maintenance, paperwork and essentially be 'on call' (especially with renting to students who are likely to be new to renting and have more questions)
-> liquidity to pay for sudden large costs e.g. boiler

Option 2: sell flat and raise residential mortgage on house using proceeds of flat as large deposit
-> no CGT if you've lived in flat the whole time
-> larger deposit (100% of flat not 75%) means lower interest rate on residential mortgage
-> no interest to pay on the deposit amount
-> no hassle of being a landlord

Note both of these assume you can raise a mortgage for the new property. However many lenders expect you to be working (not in initial probation period) so this may need to wait until 3-6months into your grad job. Also affordability criteria often only counts non rental income for a residential mortgage.

Crashy_Time

Pixie5740 wrote: »

You're post doesn't make it entirely clear what it is you want to do. I think you are asking if you can use some of the equity in your flat to purchase a house. Yes, people can do that using a Let-to-Buy mortgage which allows up to 75% of the equity to be released. Note that keeping hold of the flat means you will pay the higher rate of SDLT when you buy the house. You will also need to use at least some of the rent from the flat to pay the mortgage you will now have on the flat.

21 is hardly young, you've had access to credit since the age of 18. You should be more concerned about affordability and your credit history.

He owns a flat outright though, he should avoid debt, find a job, save and invest, and above all else avoid BTL. And yes, 21 is young!

glasgowdan

OP I'd suggest you sell the flat and upscale to the house you want when you're able. You can easily get advice about mortgages from lenders.

The problem is you're not working (I assume?).

How have you managed to pay off the flat?