Remortgaging advice. How to buy second property?

Peony2016

My fiance and I bought our 2 bed, 2 bathroom apartment in March 2016 for £202,950, as FTBs. We paid a 20% deposit and took out a 2-year fixed term mortgage with Leeds Building Society, which ends on 30th April 2018 – interest rate of 1.95%, monthly payment of £596.24. As of 07/01/2018 we owe £155,498.00 on our mortgage.

Zoopla estimates our property is now worth £230,000 (so we’ve got equity of £74,502, if I’ve got that right) although if we were to sell it, based on the sale prices of other apartments in the development, I think we could reasonably expect it to sell for at least £235,000-£240,000. If we were to rent it out we could charge £1200 per month.

So here’s the dilemma – we’d like to buy a 3-bed house within the next year and a half, but we really want to hold onto the flat as an investment property. We only have £30,000 cash to use as a deposit on a house, although the average price of the houses in the area we’re looking at are £325,000. We could scrape together another £5000 easily enough, but with stamp duty & legal fees we wouldn’t be able to put down a 15% deposit. 10% would be possible, but I’m not sure if that’s enough of a deposit.

Ideally, we’d like to stay living in the flat for the next 6-12 months, then buy a house and rent out the flat on a buy-to-let mortgage. But with our fixed-term rate ending in just under 3 months, we need to work out what mortgage to move to. We don’t want to pay any more than £600pm mortgage payment on the flat (if it’s a residential mortgage and if we’re not borrowing more money) so staying on the SVR of 5.69% isn’t a good option. And we don’t want to be trapped in a 2-year fixed rate residential mortgage if we are looking to move within the next year. Perhaps a tracker mortgage would be an option?

What are our options here? We’re going to book a mortgage appointment with a bank/broker, but I’d like to have a rough idea of the options in advance so I know what’s reasonable to expect. I hardly know anything about equity/mortgages etc (but I’m trying to learn!), so sorry if these are silly questions!

In our remortgage, can we borrow against the equity in our flat? Would that then give us additional cash to put towards a deposit on a house? Is this sensible?
Do we remortgage to a buy-to-let mortgage on the flat once our fixed-term is up, and find a house to buy now so that we’re not fixed into a fixed-rate residential mortgage for the next 2 years?
Do we buy a house now on a buy-to-let mortgage and rent it out until we’re ready to move into it? (not sure if this is a viable option)
Or do we remortgage the flat on a 2-year fixed term to get the best rate, and accept that we simply cannot afford to buy a house within the next 2 years?

Obviously we need to speak to a broker about all of this but any advice you can give or things to think about would be helpful!

enthusiasticsaver

I personally don’t think your incomes will sustain £450,000 of borrowing on property. You will need a buy to let either on the new house, but ideally the flat as the mortgage is lower and most BTL mortgages insist on 20% deposit and are more expensive than residential mortgages.

You will need a broker who can find a lender who will consider the rental income in the income multipliers. If for any reason the flat does not get tenants quickly or the tenants default on rent are you going to be able to sustain both mortgages on just your incomes? Even selling takes months so you could very quickly find yourself in dire financial straits.

I am not a fan of BTL but in your case I don’t think you have enough monthly income or large enough deposit to weather the ups and downs of renting out property. I would sell your flat and use the equity and the £30k saved to go towards your new house.

enthusiasticsaver

Sometimes fixed rate mortgages can be ported to another property so look for one of those if you are considering moving within the next 2 years

Peony2016

enthusiasticsaver wrote: »

I personally don’t think your incomes will sustain £450,000 of borrowing on property. You will need a buy to let either on the new house, but ideally the flat as the mortgage is lower and most BTL mortgages insist on 20% deposit and are more expensive than residential mortgages.

You will need a broker who can find a lender who will consider the rental income in the income multipliers. If for any reason the flat does not get tenants quickly or the tenants default on rent are you going to be able to sustain both mortgages on just your incomes? Even selling takes months so you could very quickly find yourself in dire financial straits.

I am not a fan of BTL but in your case I don’t think you have enough monthly income or large enough deposit to weather the ups and downs of renting out property. I would sell your flat and use the equity and the £30k saved to go towards your new house.

Thanks, that's given me something to think about. I think we'd rather stay in the flat for a few more years whilst we save a larger deposit and our salaries increase, if we can't afford to keep it and buy a house. Our flat is in a great location - middle of the town centre, secure allocated off-road parking space, 4 minute walk to the train station (23 minutes to Kings Cross and expected to connect to the Thameslink line by 2020) - would we kick ourselves if we sell it too soon?

I'll look into portable mortgages - thanks!

Thrugelmir

LD2016 wrote: »

would we kick ourselves if we sell it too soon?

There's no guaranteed return when letting property.

Focus on buying your home first. A BTL can wait until later.

Peony2016

Thrugelmir wrote: »

There's no guaranteed return when letting property.

Focus on buying your home first. A BTL can wait until later.

Thanks. I know letting is a bit of a gamble, just so many family and friends (who all own rental properties) keep saying ‘hold onto this place, it will be worth so much in the future’ so perhaps we’re just getting carried away. Although I do love this apartment and I’m not sure I want to leave it so soon. I’ll research tracker mortgages and portable mortgages to see what our options are for the next year.

I read last night that the train link from my town to the Thameslink line should start in May this year. I had no idea it was so soon, but could be a good selling point for us should we decide to sell

dimbo61

There are NO portable mortgage just some mortgages you can PORT if the lender is happy with the property you are trying to buy and the size of your deposit.
You say your mortgage ( repayment ) is about £600 a month so would you get £850/900 a month rent for the property ?

YHM

Why don't you just find a good broker that will look at both converting your existing property to a BTL and also your onward purchase?

Peony2016

dimbo61 wrote: »

There are NO portable mortgage just some mortgages you can PORT if the lender is happy with the property you are trying to buy and the size of your deposit.
You say your mortgage ( repayment ) is about £600 a month so would you get £850/900 a month rent for the property ?

Thanks, I've spent the day researching mortgages and feel a bit more knowledgable lender's that allow porting subject to t&cs.

Yes, we can get at least £1100 rent for our flat per month, probably £1200 based off other rental prices in the development.

Peony2016

YHM wrote: »

Why don't you just find a good broker that will look at both converting your existing property to a BTL and also your onward purchase?

We will certainly look for a broker, but if we convert our existing property into a BTL now, we won't be able to live here from May when our fixed term is up (correct me if I'm wrong). We're not completely ready to move just yet but will definitely consider it if it's the simplest option. Ideally I'd like to move at the end of this year/beginning of next year. I don't think our £30k deposit is large enough of a deposit to buy a house right now, hence my question about borrowing against our equity.

Pixie5740

Over half your £30k will be wiped out just paying the higher rate of SDLT on the new property.