Remortgage plus equity release - is this bonkers in 2022?

vpdbac

Hey, thank you in advance for your advice. I feel like such an imbecile with how little I know about personal finance sometimes. :-(

I have a mortgage on a first floor flat. £192k mortgage, current value £380k-£465k according to Zoopla. I rented it out a few months back and I need to switch from a 5yr fixed (2.14%) to a new Buy To Let mortgage shortly. My family and I are currently renting a house. 

- I'm a self employed sports coach, since 2015, so it was suggested that I should switch to an interest only mortgage and overpay each month, as this would protect me should I not be able to work.
- I'd like to release some equity, maybe £60k. 10k to pay off credit card debt, albeit they're at 0% right now. And 50k to hold as future deposit against a property in case we decide to buy the family home. 

1. Would there be a tax liability from releasing the equity? 
2. Where could I put the savings? Given inflation, unless I can get an interest rate equivalent/higher to the mortgage rate it makes sense not to release the equity, right?

3. How do I make a decision please? What should I be considering? 



yours,
clueless

K_S

vpdbac said:

Hey, thank you in advance for your advice. I feel like such an imbecile with how little I know about personal finance sometimes. :-(

I have a mortgage on a first floor flat. £192k mortgage, current value £380k-£465k according to Zoopla. I rented it out a few months back and I need to switch from a 5yr fixed (2.14%) to a new Buy To Let mortgage shortly. My family and I are currently renting a house. 

- I'm a self employed sports coach, since 2015, so it was suggested that I should switch to an interest only mortgage and overpay each month, as this would protect me should I not be able to work.
- I'd like to release some equity, maybe £60k. 10k to pay off credit card debt, albeit they're at 0% right now. And 50k to hold as future deposit against a property in case we decide to buy the family home. 

1. Would there be a tax liability from releasing the equity? 
2. Where could I put the savings? Given inflation, unless I can get an interest rate equivalent/higher to the mortgage rate it makes sense not to release the equity, right?

3. How do I make a decision please? What should I be considering? 

yours,
clueless

@vpdbac As I understand it -
- you are currently living in a rental property
- you own a flat worth (around) £400k which is rented out to tenants and has a residential mortgage on it 
- you are looking to do a capital-raise BTL remortgage on the rental property
- you need a total mortgage of 192k (to redeem the residential mortgage) + 10k (debt consolidation) + 50k (deposit on residential purchase), a total of £252k

Quick thoughts on the mortgage part of the post -

- depending on the monthly gross rent and which tax-bracket you fall in, you may be able to release up to 75% of the value of the rental property. So if you're assuming a value of 400k, that would mean up to 300k. To get a very basic idea if the rent stacks up, try playing around with this calculator https://www.themortgageworks.co.uk/calculators/how-much-can-be-borrowed-calculator

- it will almost certainly need to be on an interest-only basis, unless your income is large enough to support it along with your main home.

- your pool of lenders is likely to be small as you aren't an owner-occupier and are looking to consolidate personal debt on to the mortgage but you should still have options

- if you go with a lender that considers further-advance/additional-borrowing during the fix, then you may not have to release cash now

vpdbac

Hi K_S, thanks for taking the time to reply to me. 

What you've written makes sense. Thank you. 

I guess what I am trying to ask is: Offsetting that £50k against my mortgage would save a considerable sum in interest payments. An amount I can't envisage being recouped from interest on savings.

Do you know of any options where could I put £50k that would allow it to be accessed relatively easily and still earn a fair amount of interest please? 

simon_or

You could think about an offset mortgage but I don't know if there are any for BTL mortgages.

Or else as KS said, go with a bank that will allow you to take out an additional loan during the fixed period so you only have to release equity when you need the money.

vpdbac

I had missed that last sentence. Thank you. I'll explore.