Let-to-Buy vs Utilising all current equity

leannecollingwood

My first post here and after some initial skimming decided to ask the question (sorry if this has been covered before).

Ideal outcome: purchase new house AND keep current flat

Quandary: utilise current flat's equity in full (sell it) to buy a house or let flat (via let-to-buy) and take out second mortgage? (Unsure if I can still get equity out of flat if it's occupied?)

Situation: equity stands at approx £175k (value 250/300- 100 mortgage o/s). Partner would be on next mortgage (not on current mortgage) and we have combined salaries of £74k with potentially £15k of savings to throw in.

HOW do I decide where to go with this? I've been looking at £400k houses, is this at all achievable in anyone's opinion bearing in mind the different options and pathways open? I'd love to hear of similar scenarios and their outcomes

Leanne

Thrugelmir

With only £15k of savings appears that you don't have sufficient money to buy a £400k property while retaining the existing one. You need to rethink your expectations.

Pixie5740

Why is the ideal scenario to keep your existing property and buy a new one? What sort of yield do you expect to make from renting out your current home? How does it stack up against other types of investments? Is it worth paying an extra £12k in SDLT for?

leannecollingwood

Hmm, seems I aim dreaming a bit too bug huh?

Well I initially thought about selling my flat and using the equity as a deposit for a house since I have potentially 200k equity in it. Then I heard about let to buy which enables you to retain a property with tenants and use it to secure a mortgage on a new property, however I don't fully understand the concept around this so not 100% sure how this works in terms of using the equity (hence the question).

I would like to keep my flat as it's in a thriving area with 99% guaranteed tenancy, plus the market rate for rent is double the monthly mortgage costs, so it would pay for itself plus provide profit to cover maintenance & repairs. I think I'd be daft to let it go right now with so much regeneration happening in the locality, but I personally want to live in a house/have a garden and have the space for potentially starting a family.

What's SDLT? Stamp Duty?

kingstreet

leannecollingwood wrote: »

Then I heard about let to buy which enables you to retain a property with tenants and use it to secure a mortgage on a new property, however I don't fully understand the concept around this so not 100% sure how this works in terms of using the equity (hence the question)

You get a BTL mortgage for upto 75% of the value of the property, or the amount which will be supported by the estimated rent, whichever is the lower.

You use that to pay off the old mortgage and use what you have left over to put towards the deposit for a residential purchase. Then you get a residential mortgage as well.

It's just two separate mortgages. It isn't a miraculous way of avoiding that process.

Yes, SDLT is stamp duty and if you retain your current property, your new property will see the 3% surcharge on top of the usual tax.

leannecollingwood

I see. It's becoming clearer now, thank you.

So I could potentially have some equity left over to count as a deposit? Is there a way of putting some numbers on that to estimate what I could have available and therefore re-align my new house price expectations?

Thanks again all for your advice.

getmore4less

The starting point is what rent you can get for the flat.

leannecollingwood

I rented it out for 3 years to 2016, finishing at £1,025 pcm. Market rate for 2 beds in the area is currently £1,050 - £1,200 pcm

getmore4less

those up on lending criteria for business can give guidance and the max borrowing for £250k and £300k value with those rental ranges.

gross yields.
£1,200 £250k 5.76% about OK might make a bit
£1,125 £275k 4.91% might wash it's face
£1,050 £300k 4.20% is it worth bothering