Using equity to buy new house, but renting out current one using only equity.

jakeman123

Good morning,

I currently own a home with a mortgage with 6 months left on the fixed term. I owe £112k, and have just had the house valued £170k + giving equity of circa £58k.

I want to use the equity as a deposit for a new house and rent out my current one and using zero cash apart from paying solicitor fees. Is this possible? Has anyone done this? Reason for not straight up not selling is that homes on my street take a while to sell and have always planned to invest in property.

TIA.

canaldumidi

You may have £58K equity but can you access it? Have you spoken toan independant mortgage broker to see if you are eligible for a larger mortgage on your existing property? And even if you are no lender will give you a 100% mortgage, so not all that equity will be available to you.

But let's assume you .do manage to increase/replace your current mortgage, you'll then have £58K. Are there suitable properties available for your BTL plans at that price orwillyou need a2nd (BTL) mortgage? If the latter, will you qualify for that?

Again, your IMB will tell you.

Finally, how much do you know about running a property letting business?

Post 7: New landlords (1):advice & information :see links in next post

Post 8: New landlords (2): Essential links for further information

Post 9: Letting agents: how should a landlord select or sack?

GDB2222

The sums may possibly add up the way you want:

Suppose that you remortgage your existing property with a 90% loan. That would be a mortgage of £153k. After paying off your old loan, you'd have £40k left over, to put down on a new place.  You'd then have to convert the mortgage on your current place to BTL, so you could let it. Whether that's possible depends on the potential rent, which you didn't mention.

As @canaldumidi says, you need a mortgage broker to run all the sums. 

Slithery

I thought that BtL mortgages usually required a minimum 25% deposit - meaning that you would only have £15.5k of your 'equity' available to use as a deposit on your new property. Also don't forget the extra 3% SDLT that you would have to pay on your additional purchase.

TBagpuss

Well, step one would be to look into how much you can borrow against your current house. 

If you want to rent out your current home you will need your lenders consent. They may be prepared to give consent to let or may say you need to apply for a BTL mortgage. I think if you are looking to borrow more against tat property, to free up some of the equity for a deposit, then that may affect whether they are willing to give consent.

IIRC most lenders require you to have equity of at least 35% to offer a BTL mortgage so you would probably only be able to draw down around £15K - would that be enough for a deposit on another property? 

Also of course you would need to look into the practicalities of being a landlord, including ensuring that you were fully aware of your legal responsibilities and obligations, and tht you have budgeted to ensurethat you can afford it  - that you can afford to pay the mortgage if you have void periods or rent arrears, that you have funds to pay for any repairs etc .

Ids the house you own one which is suitable to rent out? Is the area one where you are likely to find it easy to find tenants? 

:Looking at the numbers they seem pretty low to be looking at buying a second property and becoming a landlord, especially if you don't have other savings for emergencies. 

TBagpuss

Just to add - have you consodered staying in your current home but looking into getting a lodger? It might allow you to make some savings with less of a financial and legal committment than becomeing a landlord, and you can look at investing once you have a bit more capital and have had time to research it thoroughly. 

jakeman123

canaldumidi said:

You may have £58K equity but can you access it? Have you spoken toan independant mortgage broker to see if you are eligible for a larger mortgage on your existing property? And even if you are no lender will give you a 100% mortgage, so not all that equity will be available to you.

But let's assume you .do manage to increase/replace your current mortgage, you'll then have £58K. Are there suitable properties available for your BTL plans at that price orwillyou need a2nd (BTL) mortgage? If the latter, will you qualify for that?

Again, your IMB will tell you.

Finally, how much do you know about running a property letting business?

Post 7: New landlords (1):advice & information :see links in next post

Post 8: New landlords (2): Essential links for further information

Post 9: Letting agents: how should a landlord select or sack?

Thank You. Yours and a few comments point towards speaking to a broker, which I plan to do, but just wanted to gather some thoughts first.

In terms of rent - I would yield around £850pm as a low estimate. 

I don't plan to buy a second BTL, but purely a house closer to work to live in and rent out the old house. Due to what I believe would be difficulty in selling my current house from observations of ex-neighbours.

GDB2222

Slithery said:

I thought that BtL mortgages usually required a minimum 25% deposit - meaning that you would only have £15.5k of your 'equity' available to use as a deposit on your new property. Also don't forget the extra 3% SDLT that you would have to pay on your additional purchase.

I checked before posting earlier. This site lists 13 BTL mortgages with 90% LTV. 
Buy to let Deals - Buy to let Calculator | Uswitch

I was surprised, too!

kingstreet

I suspect the £850 estimated rent won't support a mortgage large enough to make this prospect stack up.

housebuyer143

GDB2222 said:

Slithery said:

I thought that BtL mortgages usually required a minimum 25% deposit - meaning that you would only have £15.5k of your 'equity' available to use as a deposit on your new property. Also don't forget the extra 3% SDLT that you would have to pay on your additional purchase.

I checked before posting earlier. This site lists 13 BTL mortgages with 90% LTV. 
Buy to let Deals - Buy to let Calculator | Uswitch

I was surprised, too!

But you need a broker because it's likely to be a CBTL mortgage you need due to you living in it previously and I doubt you will find one at 90% ltv. 

If you do, you need to pay the 3%or 4% additional stamp duty on your new place. So your deposit for your new place is looking awfully low. 

As @kingstreet says, when the rates were really low you might have just got away with that rental calc, but with rates as they are it's highly unlikely the rent will be enough to qualify you for that loan amount 

kingstreet

If you use this, just as a guide;-

https://www.themortgageworks.co.uk/calculators/how-much-can-be-borrowed-calculator

the amount generated on a LTB by £850 a month rent, assuming a standard rate taxpayer and a five year fix upto 80% LTV is £136,000.