Mortgage on 2nd property

MammaCas

Hi
This is an enquiry on behalf of my sister. She currently has a £45K mortgage on a property worth £150K, has squeaky clean credit history been with halifax since the 1980's.
She is thinking of renting this property out and buying another for £160K but has no cash deposit and 'only' earns £15-£16K.
Is it possible to release the equity from property one to use as deposit on property two so she ends up with

Property one rents out for £500 per month (£120 more than her mortgage payments)
Property two lives in here with £60K mortgage?

Thanks in advance
:T

MammaCas

Meant to say, if it is a stupid question or more info is needed please advise

herbiesjp

She could re-mortgage the first property on a BTL and raise extra funds, based on how much the rental income will allow her to borrow.

She can then buy the second property, put down the funds from the first property as a deposit, and then have a mortgage for the balance on her new main residence.

In theory it can be done. In reality I would suggest she looks very carefully at the figures, as I would not want her to go too high on the second mortgage, as she would have to take into account the possibility of the rented place being empty for a period of time and then potentially having two mortgage to pay for

sanya_2

There are other possibilities to help with the cost and timing can be quite important. No need to get a buy to let mortgage on the property she is living now but new residental mortgage, remortgage with the same bank, or additional borrowing. That way the mortgage deal will be better. Most of lenders will allow letting residental property if circumstances change. Some with no additional costs.

If there is another application for second mortgage done meanwhile, they wont see in credit history new bigger loan on the property, or ideally offset mortgage with all money put back into mortgage will as well show small loan on the credit profile. Another application for second residental mortgage can be done, where she is going to live next, and once when that is approved - they dont check the credit record twice, there will be money for deposit available in the first mortgage. I think ideally the first should be offset really as that offers flexibility to play. (look at the IF deal good at the moment)

Maybe slightly more complicated but the cheapest way forward. A&L ands IF dont mind giving you another residental mortgage, while Nationwide is tricky. Worthwhile asking around, this has worked for me.

I have done all of this without any mortgage adviser or broker, so just make few phone calls with banks

sanya_2

As for the amount of remortgage, forgot to mention....I would go for interest only mortgage on the first property due to the tax that needs to be paid between rental income and interest part of the mortgage. And make sure that the difference is as small as possibile so the tax is small (make sure it covers your cost). No worries about repaying the mortgage, the other place she will be living she can keep repaying that if she likes, but all repayment on the first rented one will increase tax payments.

For the letting property it only matters what was the value when she starts to let it, so she can remortgage up to as much as possible so she transfers money to new mortgage and have large loan on the first mortgage and small tax to pay, if at all.

Hope this is not confusing, and I believe there is no better way forward.

sarkin

If you know what your doing and can guarantee the best btl rate go direct. But why not get a broker to do the work.

sarkin

Sorry from your figures it looks possible in answer to your question. But speak to a broker, their advice is free its up to you if you use one.