Remortgaing/Equity Release for a potential Buy to let

Habib2342

Evening all,

So I was at work today having a meeting with my manager when we started talking about pensions/retirement/property-the passage of time etc...he was telling me of his burgeoning property empire that he is building in Bristol to fund his retirement ( I think he wants to live forever..by cashing in on the capital growth of his properties in the coming years ) when he suggested I get involved in the game.

Now I do have some experience of buy to let -as I managed my mother's buy to let which she held for eight years and walked away with a nice cash sum after collecting rent and making overpayments during this period. So I know what to look out for in terms of repairs, tenancy agreements, dealing with rent arrears and the dreaded conveyancing process.

At the moment I live in a flat with a 52k mortgage. Now my mother's buy to let was in the same building where I currently reside and based on the fact that property was sold last year for £150k, I estimate I currently have about £98k in equity in my property. I was talking about wanting to do a buy to let for myself in the coming years but currently don't have enough saved up.

He suggested remortgaging my current property to release some of the equity for a deposit on a buy to let. But I thought remortgaging is when you switch your mortgage debt to another lender when you come to the end of your fixed rate period ( in my case, this is October 2018 ) ? Does he actually mean equity release - and from what I've read this will not accessible to me until I'm in my mid 50's-another 20 years away. Or am I/he getting confused with the meaning of mortgaging and equity release ?

In addition what is the minimum requirement for a deposit on a buy to let ? I'm guessing the criteria depends on which lender you approach ?

thanks,

habib.

glosoli

Mortgage terminology is often used interchangeably depending on who you speak to. But in any case, "remortgaging" is where you move your mortgage from lender A to lender B. In your case, as I presume you will be remaining with your existing provider due to the early repayment charge applicable, you are probably looking at an additional borrowing application. So in reality, you would have two mortgage repayments - one to cover your existing mortgage, and another to cover the additional borrowing aspect. You can organise this by speaking to your existing provider. Some people do call this equity release, which it is, but is entirely different from the scenario you described i.e over 55's.

Generally for buy to lets, the LTV range goes from 80% for relatively high interest rates, down to 60% to access the lowest rates. If your wanting interest only then the cap is generally 75%. But as you say the criteria will vary from lender to lender.

Just remember though the heyday for Buy to Let's has past now, both in terms of profitability due to tax changes and passing the rental coverage/affordability tests in the first place to obtain the mortgage, be sure you research it all thoroughly before committing to anything.

Habib2342

ok, so I spoke again to my manager about it but he's not explaining it in a clear cut way- so I thought it best I do my own research into it.

What I think he was suggesting is to get my flat revalued by the bank .. I'm presuming its worth 150k or thereabouts based on my mum's btl being sold for that price last year I would then apply for equity release/additional borrowing to release/borrow 25k. this would increase the mortgage liability on my flat from 52 to 75k and assuming the bank will lend to me this new balance over the same rate and terms will increase my monthly mortgage payment from £288 to £398 which I can afford...

I would then use the 25k to put down on a deposit on another property. My manager was talking about apply for HMO where you rent our the property to unrelated people and charge them individually for renting each room and shared use of the toilet and bathroom facilities as opposed to say renting it out to say a family of 3 and charging them say £1300 p/m in rent for example.

if this is all feasible, the only downside is that 25k as a deposit is not going to get me very far, especially in the London Area, so if I was to do a HMO , I would need to venture far outside of London to find a house I can afford.

I think I will speak to the bank tomorrow to discuss whether the above is feasible or not.

scottishblondie

You're going to need a 25% deposit for a BTL mortgage, so your £25k would only buy you up to £100k. You would also need to have enough extra cash to cover solicitor's fees, stamp duty (the 3% surcharge will apply) and the initial costs to get the BTL up and running, plus you need enough spare income to cover the BTL mortgage during any void periods.

You have had past experience with helping your mother with her BTL, which is good, but things are always changing. Are you familiar with the changes in taxation that are underway for BTLs and how that would affect you?

Thrugelmir

Your existing lender may not release £25k of the equity for the purpose of a deposit on a second property. Likewise the BTL lender may not accept the source of the deposit.

Then you face the challenge of potentially servicing two mortgages.

What pension provision do you have in place? A far better place for your money unless you've money you can can afford to risk.

Habib2342

i have just under 12k in my pension and 98k approx. in equity tied up in my flat. My pension provider states I can only access the pension funds in 20 years time so unlocking the equity in my flat is my only realistic chance of doing a buy to let..

what other ways can I pursue to improve my net worth and future prosperity, other than moving to a better paying job-?

mummytofour

Talk to a mortgage broker and get some advice, they will know which providers will take a deposit raised from remortgaging your own home.
Another option is let to buy, where you get a rental mortgage on your home releasing capital and at the same time, you purchase another property to live in. I don't know your situation but it might be something to think about x