What are my options? Want new home, paid off flat already.

mrlukeduke

Hi all, I need some guidance about my options going forward as I try to work up the property ladder.

I own outright a very small 1-bed flat in Worthing, Sussex, worth approx £180k. I bought it with my savings/investments money so I have no loans/liabilities. Now my gf and I want to move to a nice place, a "home" if you will, as here is tiny!

A frend mentioned a second mortgage, and said you could also look into using your flat as "collateral" or equity on a loan for a new home.

I'm currently out of work, but have ~£100k savings. I could use this as well, but I want to invest some of it and/or start a business next year. My gf is looking for a new job and currently works p/t, with savings of maybe £25k at a push. I could use my flat as a rental in future, my gf is an Airbnb wizz.

What are my options here? I've seen a place I really like for £280k. Could I put down part deposit, then get a loan using my flat to secure it? What pitfalls are there I need to be wary of?

Thanks.

Nobbie1967

Without some evidence of earnings to support mortgage repayments, I can't see how this is going to be possible. Banks tend to want some indication of how you are going to repay the money since the dodgy practices leading upto the last crash.

AnotherJoe

Your friend is badly misinformed.
I would say you are out of luck doing this, since you dont have any income to support repayments. You cannot use one property as "equity" for another. You could get a mortgage on it and use that money, however without income, thats not gonna happen.

mrlukeduke

It's a kind of chicken-egg situation with regards to rental as well. I know I can rent it, as it has good rental history and the agency says they can have bookings lined up (we went to Spain for a while and rented it out), but I can't rent it out while I live here. So I was hoping I could persuade a bank that there'd be potential rental income once we move into the new home.

00ec25

both of you need to get jobs then come back on here when you are ready to join the real world.
How come you are not asking your parents to guide you?

AnotherJoe

If you really wanted to do that, move into rented, let your flat out, see how you get on. If after a year or two you are happy that running a landlord business is for you, see if you can get a let to buy mortgage on it, and buy a new house, paying the extra £9k or so in SDLT.

mrlukeduke

That's extremely rude @00ec25!

I've been working two jobs for most of my life to save what I have. My parents are unable to help, it has nothing to do with them. I have never and will never ask them for anything.

I do live in the "real world" thanks! I am just burnt out after years of working non-stop to buy this flat, and have decided to take a year off living off my investments & savings (again that I saved all by myself without any help from anyone). I could go back to work sooner, but I am looking into my options (and want to start my own business), hence this post.

Really shocked at your negative response.

mrlukeduke

Thanks @AnotherJoe – but sorry, what's SDLT?



Are you saying I could get a buy to let on a new home? I'd rather just rent this current place and not the new one, because I want an actual home to live in and settle down into with my gf, i.e. not another lettings property.

00ec25

mrlukeduke wrote: »

Thanks @AnotherJoe – but sorry, what's SDLT?

Are you saying I could get a buy to let on a new home? I'd rather just rent this current place and not the new one, because I want an actual home to live in and settle down into with my gf, i.e. not another lettings property.

if you retain the flat you will pay higher rate Stamp Duty Land Tax (aka SDLT) when you buy a home to live in
https://www.gov.uk/guidance/stamp-duty-land-tax-buying-an-additional-residential-property

to purchase an "additional" property you will either need to pay for it 100% in cash or you will need a mortgage.

A mortgage will only be given where you have a source of income.. aka jobs

to borrow the money against the let property you will need a buy to let mortgage. The criteria for one of them is (normally):
a) minimum income of £25k
b) maximum loan on the let property of 75% of its value

so you want to buy a property costing 280.
Your let property would provide a mortgage of 180 x 75 % = 135k (assuming you can find a lender mad enough to do that given your failure to meet criteria a) leaving you 145k short.
You state you have 100k cash, leaving you 45k short.
You state GF has 25k cash, leaving you 20k short.
You have not even thought about the higher rate SDLT payable on the purchase nor the other costs for the purchase (legal fees etc)

the alternative is to get a residential mortgage on the new home. Residential mortgages are given based on income. You have none. Real world!

PS reference to parents was in terms of guidance, not money.

AnotherJoe

mrlukeduke wrote: »

Thanks @AnotherJoe – but sorry, what's SDLT?

Are you saying I could get a buy to let on a new home? I'd rather just rent this current place and not the new one, because I want an actual home to live in and settle down into with my gf, i.e. not another lettings property.

A Let to Buy is where you take out a mortgage on your current home and use that released equity wholly or partly to pay for a house you will live in, letting out what was your current home (in your case the one bed flat).

SDLT is a tax you pay when you buy a property.
When you buy an additional house, you pay an additional 3% SDLT over and above the SDLT you'd pay anyway.

3% extra on a £280k house is £8.4k.
In total the SDT payable would be £12,400.

I dont know why you'd want to let your flat out rather than sell it, from the feel of it you havent factored in the extra tax you'd pay, the extra mortgage on your new residence (bigger mortgage at higher rate) , the extra income tax you'd pay on the income from the letting, the extra costs for being a landlord, the extra hassle, and worse of all, the extra risk.

mrlukeduke

Thanks both – ok I get you now, that's what I wanted to know basically. Really appreciate the figures, I didn't know that. This is what I wanted to learn about.

So it seems possibly the best bet is just to start work again once I'm able to (should be able to find something 25k+ a year locally as have the experience), then approach a mortgage advisor.

Or as @AnotherJoe you say I can rent for a while elsewhere to generate some record of consistent income by letting my current flat and consider selling in future.