BTL current house, release equity and buy new house?

h158

I'm not clued up on buy to lets but can you tell me if this is feasible?

I own a house, which has recently been valued at £160-£170k. I have a £68k mortgage on it. 2 houses down (exactly same house) has just been put up for rent at £795 pcm. 4 bedroom detatched 3 storey, garage, and would rent mine furnished so imagine could get a bit more. Haven't a clue what the btl market is like where I live so need to research that but need to know if what I'm thinking is a no go from the start first.

So... I have approx. £90-£100k equity in the house. Can I turn my mortgage into a buy to let mortgage, and release the equity to put into a new property, AND get a regular mortgage on the new property based on our income??

Joint income £37k. No other debts, no debt issues. If I can release the equity I'd need £150k mortgage.

Only an idea. Opinions and advice appreciated. Please don't go mad at me if this is a bonkers idea...haven't looked at buy to let before so don't really know what is involved.

BilboBaggins_3

Are you planning on moving out then ? i.e rent yr current house and live in newly purchased house ?
It is possible to change yr current mortgage into a BTL, I did it a month ago.
Based on the figures you have quoted it shouldn't be a problem, bear in mind a BTL mortgage is more expensive than traditional one. Given the turmoil in the markets Id go for a fixed rate so you know what yr outgoings will be for a while until things calm down. A simpler thing may be to increase yr current mortgage and put that down as a deposit and let the rent cover the payments of new mortgage? Always bear in mind you may have an empty period where you end up making 2 mortgage payments, so you have to be covered for that.

BenL

H158, research research and research is my advice to you.

Buy to lets and being a landlord needs to be treated like a business otherwise you may end up losing money.

From what I have been reading on here and on news sites the buy to let market is a bit of a minefield at the moment and an un-prepared person is an easy target with estate agents and property companies overstating possible rents.

There will probably be more specialist sites and magazines etc for this purpose but there are quite a few people on these boards with experience, also quite a few people that have got into bother with tenants because the tenant knows what they can do and the landlord doesn't.

h158

Yes, we'd be moving into the new property (we'd offer £250k for it).

Lots of risks I think but I've always aimed to have a 2nd property to let and I think I'd rather have one that's aimed at the higher end of the letting market e.g. a family or busness people. I work for a multi-national company who have lots of secondments, overseas visitors, graduates from outside the area, students etc. and we always have problems with where they stay, so I may approach work to see if they want to rent it for say 2 years.

BilboBaggins_3

For yr first BTL purchase aim for yr local area that you know, its a lot simpler and you can assess the risk reasonably well (ie realistic rent levels, prospective tenants, property prices etc)

h158

I'd be letting my current house, and moving out to buy, and move into a new house, not far away. So I know the area but don't know what rental demands are in the area.

Ideally I wanted to sell my house and buy the new house but it ain't happening in the current market :rolleyes: so this is a bit scarey...

luckyfool

H158,

The scenario you are suggesting is very common at the moment, and I have seen plenty of people do it. You do need to be aware of the risks and issues that are involved though.

You could switch your existing mortgage onto a Buy to Let (as another poster has suggested), but I am reading your post as that you would look to release equity from the house to assist with the new purchase? If thats the case you will need a lender to do the buy to let, and also a lender for the new house that will ring fence and ignore the fact you are retaining your current property. Do speak to a broker about your full circumstances as that the only way you will get accurate and full advice.

A few points though,

1. Remember that you may have void periods when the property is not let, or if you get a problem tenant refusing to pay. You would be well advised to make sure you have savings built up so that you could pay both mortgages without rental income if you did have a 2,3,4,5 month period where there is no income.

2. Are you willing to put the effort in yourself to manage the rental, or would you pay a letting agent to do it all for you?

3. You are not going to be able to get £150k on a buy to let remortgage. absolute maximum would be 90%, but that is very difficult to make work on affordability, and would be very expensive. 85% would be more realistic, and there are lenders who will do 75% on a buy to let remortgage irrespective of the rental income and on better rates. Assuming a £170k valuation that would mean £144,500 for 85%, or £127,500 on 75%. Now I'm not sure if you have funds to cover legal fees and stamp duty +o ther costs on your purchase, but assuming you do, and that there are no penalties on your current mortgage, that would leave you with £76,500 on the first scenario (needing a £173,500 mortgage for the purchase, 4.7 times your joint income assuming you have no credit commitments) and £59,500 on the second scenario (£190,500 mortgage required, or 5.15* your joint income).

Now those figures should be doable but do represent a big income stretch and would involve a restricted number of lenders being available. If you have additional income from bonus/overtime etc above the £37,000 joint you mention in income then it would be more comfortable.

I would strongly recommend sitting down and doing your sums and looking at what kind of safety net you have in terms of savings etc in the event of rental income being interrupted etc.

Hope this helps,

Joe

herbiesjp

h158 wrote: »

I'd be letting my current house, and moving out to buy, and move into a new house, not far away. So I know the area but don't know what rental demands are in the area.

Ideally I wanted to sell my house and buy the new house but it ain't happening in the current market :rolleyes: so this is a bit scarey...

So you could look at the BTL as a short term option in order to help you get the new property.

SO you could leave your options open to sell the new BTL property and the use the funds to reduce your residential porperty once it has been sold.

To do this you will need to make sure the BTL mortgage has ne penalties at any time to close it down, and the new mortgage on the new main residence would need to be able to take overpayments (the sale proceeds of the BTL)


This might sit better with you if you really wanted to sell the first property asap

h158

Thanks for your advice and opinions everyone. I'm going to take a while to think things through to make sure we make the right decision. :beer:

sarkin

we normally call these mortgages a let to buy mortgage

Smi1er

£795 pcm rent on a house worth £170K is not realistic, as it represents a yield of 5.6% and a figure like that is unlikely in todays market. I would bank on £650-700 pcm