Do I need to do let to buy?

MiseryChastain

Hi there

Background is that I own a flat that is worth around £450K (RCIS valuation) and about £30K less than the purchase price - it was a new build so that is to be expected. My other half and I have been living separately and so I occupy the flat. She can't move in with me due to work commitments so we are looking to find somewhere together in the next year or so which is more convenient for both of us. I have around £180K equity in the flat. Separately, I have around £50K savings.

Ideally, I would obtain consent to let the flat out for a year or so while we rent somewhere together just to actually trial living together without me selling my flat altogether. We'd then hopefully look to buy a house together.

Jointly, as at today's date, we could get a mortgage of around £550,000 based on our salaries. However, I don't really want to sell my flat for a few more years because of the state of the market - I'd like to try to minimise the losses given the drop in value since purchase 3 years ago.

My questions are:

1. If my LTV on my flat is 60%, would I be able to get a let to buy arrangement to release some equity for us to purchase the house together? How much equity could be released?

2. Should I even be considering the above? We would be looking at a house in the £600,000 range - with the estimated mortgage we could get and joint savings of around £70K, could we proceed to purchase a house in the region £550-600K without releasing equity in my flat?

P.S. I am well aware of the increased stamp duty on second homes and am aware of the advice on here as to whether or not I want to become a residential landlord.

Basically just trying to find a solution to us being able to buy somewhere together but without being forced to sell my flat which will ultimately be sold at a loss given depreciation and the market!

Any advice welcome.

Thanks

AnotherJoe

Unless property prices rise in your area over the next three years you seem to me just to be trading off crystallising a loss you've already made vs the certain losses of the extra SDLT plus all the costs of setting up as a landlord.
Have you considered renting together for say 6 months before buying (and then selling without renting)
Also if you did let you would obviously be starting a countdown clock on the buy to let unless you are prepared to take the extra SDLT as a sunk cost - in which case isn't the loss on the flat the same ?
You might also consider that whilst you would be taking a loss on the flat is that not compensated for by a similar drop in the property you would buy?
Finally, Just asa matter of interest, if you proceeded with your plan, and this is an open question but I wonder if youve considered it, would you expect your partner to split the extra SDLT with you or will you be picking that up 100%, also what will you do with the equity in the current place when you sell, and how will that affect the % you each own of the new place ?
Just some points to ponder.

kingstreet

MiseryChastain wrote: »

1. If my LTV on my flat is 60%, would I be able to get a let to buy arrangement to release some equity for us to purchase the house together? How much equity could be released?

We don't know.

What you can borrow is as much a function of affordability as it is loan to value.

Probably most accurate way of answering is to say the lower of 75% of the value and the mortgage amount reached by taking estimated rental income and dividing by 145% and using a rate of 5.5% to calculate corresponding mortgage amount.

For example, if the rent would be £1,500 per month, the maximum mortgage would be £225,705.

There are some lenders who permit "top slicing" which means using surplus personal income to subsidise rent, but this may result in lower borrowing power for the new residential purchase.