Getting a second property, can we close off/transfer my existing mortgage balance?

heston2014

Hi

We are looking to buy a second home as our primary residential home. Our current mortgage is 87k and the market value for our existing property is around 385k. We are looking to buy a property around 375-400k. The plan is to rent out the first property but I would like to know how it would work with the mortgages and equity?

As we have equity in the property, would the existing mortgage be closed/paid off/deducted from equity or transferred to the new property? or would it be a completely new second mortgage and the first one converted to a BTL mortgage? I cannot get my head around it as we would borrow LTV but I understand that the equity could be the deposit? So if we were buying a property of 375k, based on our equity, how much LTV would we borrow and would we have two mortgages?

Please advise.

Thanks and Regards

Thrugelmir

The only methods to release equity in your existing property is to either sell it or borrow against it, i.e. increase the size of the mortgage.

If you don't sell your existing property how are you proposing to raise £375k to purchase the new property.

Would be usefull to know your annual household income and the amount of savings you currently hold. To provide more informative replies.

heston2014

Thanks for the response.

We would borrow against equity, 10k savings and an annual income 75k.

Cornucopia

Have you had Mortgage advice for the new property yet - what are you borrowing, and (crucially) how much deposit will you need?

You can certainly increase your borrowing on the old house when you move the Mortgage to BTL (and you could potentially do this either with a new BTL or Let-to-Buy mortgage, or with Consent-to-Let on the existing Mortgage).

I'd suggest looking at Let-to-Buy, if you meet the criteria, as this (a) signals to Lenders exactly what you are doing, and (b) has built-in flexibility on timing that other products do not have. i.e. you can obtain your LTB product, release deposit funds and continue to live in your old house until your new house purchase is complete, even if this takes several months.

heston2014

Not yet, looking to buy a 3/4 bed house as a family home for around 350-375k. Our first mortgage was through a specialist broker as my other half had an IVA years ago. I just can't get my head around how and if we need to two mortgages. We would obviously increase our mortgage overall but I what I don't get at the moment is if it would involve two mortgages or if we can have one overall mortgage covering both properties and also what LTV we can borrow against our equity?

Thanks for the response.

Pixie5740

It would be a completely new mortgage on the new property. You would need to use a Let to Buy mortgage on the current property to release equity to use as a deposit for the new home and to put towards SDLT because your £10k savings will at best cover half your SDLT liability.

heston2014

Ah ok, so LTB on existing property to release/borrow equity for next property and take out a new mortgage. Thanks this is really helpful.
We are located very close to 3 universities and looking to rent out to students managed by the university's accommodation department. This would guarantee us rental for 51 weeks a year which would more than over the mortgage. That's the plan but I hear that it can add some complexity to LTB type mortgages? Any ideas?

Thanks again for the responses.

Pixie5740

How do you know the rent will more than cover the mortgage if you didn't even know you would need two separate mortgages?

How much equity will you need to release to find the purchase of the new property?

How long will it take you to recover the higher rate of SDLT by letting your current home?

heston2014

I did some calculations based on a 250k mortgage on current property, obviously not accurate but I have been doing some research to get an idea. It's my first time remortgaging/purchasing a second property, hence I didn't know what the process was until posting here so thanks!

Cornucopia

heston2014 wrote: »

I just can't get my head around how and if we need to two mortgages. We would obviously increase our mortgage overall but I what I don't get at the moment is if it would involve two mortgages or if we can have one overall mortgage covering both properties and also what LTV we can borrow against our equity?

It's possible to buy two properties with one mortgage, but I don't think your figures/scenario work for that. Buying with two mortgages is actually more straightforward, I would have thought.

I think your overall figures work, since you will probably want to get to 30-70% LTV on each property. Therefore, if you have around £300k in equity, you could split that to achieve the BTL with, say, 65% LTV (£250k mortgage on £385k property), and your new property with 57% LTV (£220k mortgage on £385k property).

As other posters have mentioned, you also need to account for (significant) SDLT fees when buying a second property.

Thrugelmir

You've no savings. Therefore you will looking to borrow:-
£87k existing mortgage
£375k new property
£15k Stamp Duty and Legal Fees

In total £475k.

On a £75k income, little chance.

While the property may generate a rental income. You've no ability to cover void periods, tenant defaults etc.

You need to build more equity and/or savings. Or rethink your plans entirely. If you wish to start building a property portfolio.