Sell or remortgage to build a portfolio?

Jofes

Hi,

Just wondering if someone else has been in a similar position and can hopefully offer some advice.

Two and a half years ago I bought a project house for £87,500. I’ve now had it valued at £145,000. I basically want to try and build a portfolio by buying property under market value, renovating and remortgaging to release the added equity and then renting them out. 

My current mortgage is with nationwide who said they would lend me £52,500 if I remortgage but they would not lend me the money if it was to buy property. (They also said it would be fraud if they find out that’s what I used the money for and it was stated in application). 

So I’m split between selling the property, paying about £3500 in fees and starting again or trying to remortgage early with a different bank and pay around £2100 exit fee. My partner doesn’t want to live in a project so we would probably have to buy two smaller places, one being a project. My concern is if I have more trouble remortgaging I would have to sell the second property and be hit with capital gains tax.

I find it strange that nationwide won’t lend money for a second property, surely it’s in their best interest to get me on a larger mortgage deal. I even offered to lower the LTV to reduce their risk but they just outright won’t touch it. Has anyone had this issue before? I was wondering if it’s because they are a building society rather than one of the larger banks who may be more profit driven?

Thanks

Joe

mcpitman

Nationwide - their money, their decision. Probably because you are raising funds on a personal residential mortgage for commercial/BTL purposes.

Sounds like you either need to find a new lender or re-think your plan.

If you were to sell the current property and buy 2x smaller properties (as per your plan), do you have enough funds to buy one "decent" smaller property to live in, one "fixer upper" and the funds to do all works required?

letsbetfair

Buying property under market value is hard. If you can do this consistently you're in a great position to make money by buying then reselling. Do you have some additional knowledge or skills that lets you do this, though? If a property is significantly underpriced, generally multiple people will try to get it.

You've done well on the first property! I'd be interested to know how much profit you're left with after taking off your costs and the rise in house prices in that area.

AdrianC

letsbetfair said:

You've done well on the first property! I'd be interested to know how much profit you're left with after taking off your costs and the rise in house prices in that area.

...and how that works out to an hourly income...

TonyJ2021

Apologies for jumping on this post, but I raised a similar-ish query a few days ago but sadly didn't get any response.

https://forums.moneysavingexpert.com/discussion/6286160/future-equity-retention-considerations#latest

To simplify - I assume if you move house, in my example to upsize, because we would effectively be applying for a new mortgage, you'll be able to dictate how much deposit we would like to use from the equity of our current property and how much we'd like to retain?

K_S

@jofes It's just Nationwide criteria. They don't allow capital raising to purchase a BTL property. This is more the exception than the norm.

Plenty of mainstream resi lenders will allow capital raising for this purpose so in principle this shouldn't stop you from remortgaging to another mainstream lender.

Jofes

mcpitman said:

Nationwide - their money, their decision. Probably because you are raising funds on a personal residential mortgage for commercial/BTL purposes.

Sounds like you either need to find a new lender or re-think your plan.

If you were to sell the current property and buy 2x smaller properties (as per your plan), do you have enough funds to buy one "decent" smaller property to live in, one "fixer upper" and the funds to do all works required?

Sure it's their decision I just struggle to follow the thought process putting myself in their shoes. Yes we would manage to buy two smaller properties and be able to fix one up. I think going down this route I would prefer to remortgage the renovated property to avoid capital gains tax as that's quite a chunk off any profit if it's something i'm trying to repeat.

letsbetfair said:

Buying property under market value is hard. If you can do this consistently you're in a great position to make money by buying then reselling. Do you have some additional knowledge or skills that lets you do this, though? If a property is significantly underpriced, generally multiple people will try to get it.

You've done well on the first property! I'd be interested to know how much profit you're left with after taking off your costs and the rise in house prices in that area.

Definitely hard to find the right property it does take time. However i'm hoping having a cash pot from this first property will open up the auction route as there seems to be more project houses there. This first renovation has gone well, it's been gutted and renovated throughout for around 11k so if we sold it we'd be looking at around 45k profit. The house price is around 5% higher at the minute due to the current market conditions.

AdrianC said:

letsbetfair said:

You've done well on the first property! I'd be interested to know how much profit you're left with after taking off your costs and the rise in house prices in that area.

...and how that works out to an hourly income...

A lot of hours and hard work was put into this but I also work full time which I will continue to do so I won't be under any time pressure. I would be aiming to flip them quicker in future possibly by losing some of the profit margin and using tradesmen for some jobs in order to speed it up. All depending on the scale of future projects obviously.

K_S said:

@jofes It's just Nationwide criteria. They don't allow capital raising to purchase a BTL property. This is more the exception than the norm.

Plenty of mainstream resi lenders will allow capital raising for this purpose so in principle this shouldn't stop you from remortgaging to another mainstream lender.

That's good to hear, many people use this method to grow a portfolio so I was hoping this was uncommon practice from nationwide. It sounds like whichever route I go down the key will be moving away from nationwide.

I appreciate all the comments, its a lot to consider and it's important to make the right choice.