Hypothetical - Future Planning

MeFlan2023

Apologies if this question seems a waste of time but wanted to ask the forum as I have very little experience of mortgages and what is or isn't possible.
Currently living in a house we've outgrown but due to schools will stay for another few years. Is below even possible?

House 1 will have approx 40/50% equity. Can we use this equity as deposit on 2nd residential mortgage on House 2 and then remortgage House 1 as BTL. Plan to keep as BTL for 10 years (clearing remaining mortgage) and then selling using proceeds towards retirement/paying off remaining mortgage on House 2. 

Providing affordability is not an issue which it shouldn't be as dependents will have left home, will be debt free is my proposal even possible. 

Thanks for indulging my idea.

M

Strummer22

People do this sort of thing all the time. You'll want to talk to a broker to confirm the timings of getting the mortgages in place, but in theory it's not a problem.

If you've 'outgrown' house 1, but by the time you're moving to house 2 the dependents will have left home, do you really need to keep house 1 and become a landlord, or even move at all given that your household is going to shrink again? Being a landlord is not necessarily a stress-free passive income you know. It can be risky and stressful. 

MeFlan2023

Thank you for your comments. TBH our current home is not in a great area and we only stayed due to healthcare commitments of looking after family and now schooling. It does have great rental opportunities and tbh doing this would allow us to recoup all the money spent over the years. We would definitely be short term landlords and use an agency to look after. 

Bigphil1474

Don't forget the stamp duty payment on second homes would kick in - 3% on the total purchase price up to £250k, 8% up to £925k.

Other than that, your plan is entirely feasible.

kingstreet

You would need to remortgage the current property to raise the deposit for the onward purchase. This is known as a 'let to buy' and you will be governed by the loan to value and estimated rental income.

Typically, if the let is considered self-financing it won't impact affordability for the residential mortgage.

Such propositions do require careful planning. While looking for a competent broker, your most sensible first step is to obtain a written estimate of the rental income from an ARLA registered letting agent.

MeFlan2023

Great thank you so much. The rental income should be approx £200 more per month than the mortgage payment. Will take stamp duty into consideration. Appreciate everyone taking time to help out. When it's time we will definitely get a good broker and rental valuation.