Reason to release capital of existing property

amsjrt

Hi,

I have a property (mortgage free) but wanted to remortgage it so that the money release can be used to buy another property. The current property will be let out. I have applied for a buy to let mortgage and has been approved and the rate offered is 3.3%. Given the recent horrible news about potential housing crisis, I decide not to buy any property, or at least wait and see for the time being. 

The question I want to ask is if I can use the money borrowed (at 3.3%) and put in a saving account which offer higher rate? I am seeing fixed term saving rate as high as 4.1%pa now. So this sounds like a risk free investment return to me. 

However, bear in mind that when I applied for the buy to let mortgage, I told them that I plan to buy another property. So can I change my mind and tell them a different reason? Will they accept that I am going to put in a saving account that offers higher interest rate, as an acceptable reason?

Alternatively i will just not proceed with the mortgage offer.

thanks

MattMattMattUK

amsjrt said:

Hi,

I have a property (mortgage free) but wanted to remortgage it so that the money release can be used to buy another property. The current property will be let out. I have applied for a buy to let mortgage and has been approved and the rate offered is 3.3%. Given the recent horrible news about potential housing crisis, I decide not to buy any property, or at least wait and see for the time being. 

The question I want to ask is if I can use the money borrowed (at 3.3%) and put in a saving account which offer higher rate? I am seeing fixed term saving rate as high as 4.1%pa now. So this sounds like a risk free investment return to me. 

What would be your marginal rate of income tax on the interest? If you are a base rate income tax payer then the rate after tax will be 3.28%, if you are a higher rate payer then the rate after tax will be 2.46%. Either way it sounds like a negative return.

amsjrt said:

However, bear in mind that when I applied for the buy to let mortgage, I told them that I plan to buy another property. So can I change my mind and tell them a different reason? Will they accept that I am going to put in a saving account that offers higher interest rate, as an acceptable reason?

Putting it in a savings account does not mean that you are not going to use it to buy another property, it just means that you are delaying buying another property. They would not lend to you if your application have a reason of "Putting the money into a savings account". There may also be issues with a BTL mortgage where you then continue to live in the property, but that depends on the specific policy and the issues are generally people trying to let a property on a residential mortgage. 

amsjrt said:

Alternatively i will just not proceed with the mortgage offer.

If I were in your position that is the option I would choose.