Buy to let and new property

hodders

My friend has suggested instead of moving to a new property and selling the existing one, to rent out the old house and buy the new one.

However, I am confused, I know we’d have to get a buy to let mortgage on existing property, we have about £80,000 left to pay off. How then would our equity work? Say our house is worth £400,000 and the new house we wanted would be £600,000. How much mortgage would have to get for the new place? It wouldn’t be all £600,000 would it? 

Or do we have to take a bigger buy to let mortgage to pay for the new house? 

Can anyone help me get this straight in my head and just give me a rough idea how it works?

[Deleted User]

hodders said:

My friend has suggested instead of moving to a new property and selling the existing one, to rent out the old house and buy the new one.

However, I am confused, I know we’d have to get a buy to let mortgage on existing property, we have about £80,000 left to pay off. How then would our equity work? Say our house is worth £400,000 and the new house we wanted would be £600,000. How much mortgage would have to get for the new place? It wouldn’t be all £600,000 would it? 

Or do we have to take a bigger buy to let mortgage to pay for the new house? 

Can anyone help me get this straight in my head and just give me a rough idea how it works?

You’d need a let to buy mortgage (usually max of 75% LTV) to take some equity out the first property to use as the deposit for the second property. LTB mortgaged usually come with a stipulation that the rent has to be 125% of the mortgage payments or sometimes even 145%. 

You’ll also be facing a SDLT bill of £23,000 rather than £5,000 on the purchase of the £600,000 property so you’ll need to factor that in too. 

Would your current home make a good rental property? What’s the demand like for properties of its type in the local rental market? How much rent could you realistically except to get? 

Are you aware of your responsibilities as a landlord, and don’t just brush this question off by saying you’ll use a letting agent?  Do you know how the special measures for COVID-19 are impacting landlords? 

haras_n0sirrah

Speak to a broker
It is a let to buy and onward purchase. Not every lender allows it and some will factor in both mortgages, some will ignore the let mortgage as long as the expected rental stacks up
As others have said stamp duty is something you need to factor in.
If you don't have a broker some of us who post here are independent brokers and we are identifiable by our signatures. We are not allowed to approach posters but most of us are happy to respond to pm's asking for help 

hodders

Thanks both that has been great. We are hoping we can meet with mortgage advisor this week to see which way we need to take things. I hadn’t realised about the extra stamp duty but by not selling we also save on estate agent fees, so there is that as well.