How to release equity for second home

smiley19871

Good morning,

      I found your website online and it offered free mortgage advice so I was inclined to get in touch. I am looking to buy my next home with my husband and just exploring options online at the moment so I just wanted to know if I am correct in thinking the following:

Our home is valued at £235,000
We bought it for £130,000 and currently still owe the bank £90,000. 
So I understand that the equity in our home is £ 145,000.

Rather than sell this home to release that money as a deposit on our next home we are exploring options to possibly keep it and release that money through remortgaging? Turning it into a buy to let? (This is where we don’t know our best option and need your advice!) jointly my husband and I earn £81,500.

We could let this property out for around £1050 per month. And our mortgage on this property is currently £450 per month.

Can you advise of the different options available to us with rough figures of what payments would look like in those scenarios. Also we would like to release the full £145,000 if possible for the deposit on the next home so what does that look like in practise? 

We know we could sell our current property and access the money that way but just wondering if there is a way to keep it and possibly let it and still access the £145,000 for next home? 
Any help will be appreciated!

K_S

@smiley19871 What you want to do - convert your current house into a buy-to-let, release cash and use it as a deposit for an onward residential purchase (to live in) is called a Let-To-Buy scenario. It's not uncommon at all.

You currently owe 90k on a 235k property. Typically, you would remortgage this to an interest-only buy to let mortgage and that may (assuming the numbers stack up) allow you to take the BTL mortgage up to 75% LTV, ie 176k. Taking off your current 90k outstanding mortgage, this may mean that you can potentially release about 86k in cash to use as a deposit for your new house. I hope that makes sense.

There are other implications of keeping this property to let (stamp duty surcharge, etc) which I'm sure others will expand upon.

smiley19871

@K_S thank you for your reply I am a complete newbie at this so forgive me if the questions seem silly! Why could I not choose a repayment BTL mortgage on my current property as you referred to an interest only option? Also I have heard of Let to Buy mortgages do these allow for more money to be released from my current property? I am just looking at my options of, apart from just selling and taking my £145,000 from my property, a way to release the most cash I can as a deposit for my next property and if I can let out this one if that makes sense. 

K_S

@smiley19871 In theory, you could apply for a capital repayment BTL mortgage but in practice, I've never met a landlord who does. If you do get a repayment BTL mortgage it will likely have a big impact on your affordablity for the new house. In any case, even with an I/O mortgage, most lenders will allow you to overpay up to 10% (of the outstanding mortgage) a year without any penalties so nothing is usually stopping you from making capital repayments if you wished to.

Let to buy is as I've described in my initial post. Roughly speaking, the most cash you'll be able to release in a let-to-buy scenario with the numbers you shared is around £86k.

MWT

smiley19871 said:

We know we could sell our current property and access the money that way but just wondering if there is a way to keep it and possibly let it and still access the £145,000 for next home? 
Any help will be appreciated!

Just to add emphasis to what K_S has already said, the only way to access the full £145k equity is to sell it.

Otherwise you would be looking for a 100% LTV mortgage which is not possible for a residential product right now let alone a BTL.

Also do take time to consider if you really want to become a landlord, look at the tax implications and don't just assume you get to keep all of the rent less the BTL mortgage cost, you will have other fees and costs involved on a regular basis.

dimbo61

Jointly you earn £81,500 so you might both be basic rate tax payers.
If you do manage to get an IO BTL mortgage and rent the property out for £1050 a month ( £12,600 a year ) may push you into higher rate tax.
Being a Landlord is a pain in the neck even with paying tenants.
Watch Rogue Landlords and Nightmare Tenants to find out what could happen before Covid19 and the ban on evictions / changes to the law coming in.
Many LL,s selling up