Re-mortgaging to buy another property...do I have a legit opportunity here or a pipe dream?

RedfordML

With my partner, we own a house we paid £280k in 2018, have £160k left on the mortgage and its current value is £350-370k. 

I have seen a 3 bed flat, in the same town, for sale at £125k. Could I ask my mortgage company to release £120k, we purchase and then rent out the flat, and keep this as a long term pension pot? 

What are the chances? None, every? Our household income is £62k joint. We currently overpay our current mortgage by £200 a month. 

What could be our next step? If any? 

housebuyer143

Yes no problem doing that. Factor in the 3% extra stamp duty is all.

lika_86

Have you actually worked out your potential returns taking into account stamp duty, upkeep, managing fees (if any), CGT, the extra borrowing costs on your main property etc?

You may be better off investing the money elsewhere or focusing on paying off your mortgage first. 

Cost it up properly.

silvercar

Yes, completely within the rules. You can even count the extra mortgage interest as an expense of the letting business on your tax return, as it is the purpose of the money that counts, not where (or indeed if) it is secured.

[Deleted User]

You can actually do this but I suspect that it is a poor investment at this time. 

Assuming you raise funds from your current home and buy the flat outright. Lets then assume that you are paying 4% on that 125k on your residential mortgage. As you can see, you will need to do very well with yield to make up for this, let alone all the other costs that you will incur when starting a residential lettings business.

Also, with the 3 bed flat being 125, there seems little prospect in terms of meaningful capital appreciation. 

LegallyLandlord

A few things come to mind as I read this thread:

- flats can be difficult investments as increases in the service charge and ground rents can impact yields. I had a flat where the service charge went up from £1,400 to £2,500 in one year. The monthly rent was £1,500 so I eventually sold as the yield was too low. Make sure you have a good look at the last 3 years of accounts of the freehold management (your solicitor will get these as part of the management pack)  to see if there’s a sinking fund or signs of the service charge going up. 

>> for more on flats v houses: https://theindependentlandlord.com/do-houses-or-flats-make-better-buy-to-lets/

- there’s a lot in being a landlord. If you outsource management, you’ll lose 10-15% of the gross rent in fees. If you want to self-manage (I have always self-managed), you’ll have a steep learning curve.

-  I suggest joining the NRLA, the National Residential Landlords Assn as they have excellent resources and support to help you be a good landlord. You can use this code for £15 off UYN-702 - https://www.nrla.org.uk/join

- you can only set off the full interest against income if you set up a limited company, otherwise it’s capped at a tax credit of 20%. For more click here: https://theindependentlandlord.com/is-a-limited-company-best-for-landlords/

- is there good demand from renters in the area? Does it have good transport links? Parking? What’s the EPC (energy performance certificate) rating? I’d avoid properties that aren’t at least a C as new rules are likely to make this compulsory for rented properties. 

- Finally, here’s a blog post explaining what you need to know as a new landlord. It will give you an idea of what’s involved. 

https://theindependentlandlord.com/new-landlords-guide/

Hope that helps. 😊

Noneforit999

As others have said, yes you can do this.

However as also pointed out by several other posters, you really need to do your sums as you are going to need to factor in the 3% STLD for second homes, conveyancing costs, any costs to get the flat up to the spec required to rent, landlords insurance, any future repairs needed etc.

Considering the borrowing of the initial funds to buy is costing you say 4% combined with the STLD and conveyancing costs you need to make back before breaking even, you are going to need a high yield to make this worth while and even then, you are banking on this £125k flat being worth X amount more come retirement time. 

justwhat

Great time to buy, but....

Cash buyers have leverage.  The market is a buyers market at moment. Find a desperate seller and get it at below market value.

Low value properties sell fast as people still prefer bricks and mortar for a  small investment , while bank interest rates are low. 

Commercial property or mixed use is a good investment. Provided its a good location and potential. (great for cash buyers)

There is various red tape regarding being an LL. Tenants have more rites than LL's.  

Read up and look at the nightmare tenants, see if you could handle it. lol 
 

Mutton_Geoff

Think of it this way, you have a nice amount of equity and have gone someway to paying off your mortgage. Now you want to take out a loan secured against your own home to start a business you don't have any experience of.

Timing is not good for BTL in terms of taxation and tenant rights.

Gycraig

Have you looked at the return on rental against the new mortgage you would be paying ? With current interest rates most land lords are getting out of the sector for a reason.

I was going to do similar with my property last year which was an amazing return, overall cost involved has basically doubled while rents haven’t gone up that much. 

housebuyer143

Mutton_Geoff said:

Think of it this way, you have a nice amount of equity and have gone someway to paying off your mortgage. Now you want to take out a loan secured against your own home to start a business you don't have any experience of.

Timing is not good for BTL in terms of taxation and tenant rights.

You have to take risks to make money. I plunged money into a rental made £70k profit in 8 years. I would never have made close to that paying down my mortgage. 

Not everyone has the dream of playing it safe and paying off their house at 40. 

That being said I don't personally think now is the time to go into rental