Secured loan on right to buy flat

Gunnner2010

Hi All,
First time on here so me kind please, I have a right to buy flat that I will own out right in Feb 2021 and by out right I mean if I sell or remortgage I do not need to pay the council or seek their permission. Since buying the flat I had boy and I’m expecting twin now. I moved out of the flat about 3 years ago and it’s been on rent since then, I currently rent nearby and I would like to buy the house I rent from my landlord. I owe about 50k in loans and credit cards, I earn about 50k per year, my flat was valued at 200k in 2016 and I owe about 70k on it. My rented house is worth about 5-600k.

My questions are 1) can I take equity out of my flat and use it as a deposit?  2) will I have to take a buy to let mortgage on my rented home? 

3) would it be better to sell the flat and use the equity as a deposit for the house?

4) during COVID-19 my tenant couldn’t afford the rent and I had to take a mortgage holiday for 3 months, will this go against me if I ask my mortgage company for a loan secured on my flat?

KatrinaWaves

You don't have enough income/savings to buy a 500-600k flat.
You will need to leave around 25% equity in your rental property, so you can take out about 80k leaving in 50k.

You have large debt, so your deposit is 30k. which is barely 5% after fees.
Your income, even lending 5x at the higher end, is 250k, so you can possibly at a big push buy a 300k property. Not a 5-600k one.

Even if you sold the flat and had the full 130k equity,after your debts you'll still only have 80k free money, and no enough mortgage power to get to half a million quid.

Gunnner2010

Hi Katrina,

Thank you for input. I guess I will sit tight then. What about borrowing against the flat to clear my debts, my loans and credit cards are between 19 and 29%.

Also will the mortgage holiday I took go against me?

KatrinaWaves

There is nothing stopping you trying to take money out of the flat, although it will of course increase your mortgage repayments. 

Emmia

Gunnner2010 said:

Hi Katrina,

Thank you for input. I guess I will sit tight then. What about borrowing against the flat to clear my debts, my loans and credit cards are between 19 and 29%.

Also will the mortgage holiday I took go against me?

Turning unsecured debts (credit cards) into secured debts (mortgages) is generally a bad idea - you'd end up repaying them over the remainder of your mortgage term and the interest will make it more expensive overall - there is also a chance you could run the debts up again, especially as you're presumably about to go on Maternity leave so your income may fall... 

You could look to see if you can get a 0% credit card for some (all?) of this debt instead and start tackling it that way. 

MinuteNoodles

No chance of getting a mortgage with a £50k income and £50k of unsecured debt that is attracting between £10,000 and £1500 a year in interest. You need to forget about buying and concentrate on getting that debt down because if you don't it'll take very little going wrong and you'll need to be posting on the bankruptcy board.
Personally in that position I'd be selling the flat, clearing the debt with the equity, put aside some of the rest for an emergency fund and then start to build up a sizeable deposit with the remaining equity plus the money you were paying out in loans and credit card payments every month to look to buy in a few years in a much better position both from a creditworthiness and income vs expenses point of view.