Equity in home, is this possible?

RedfordML

Bought current home, 250K in 2018, current value £325-335K, current mortgage owed, £150k.

Can we simply ask the bank to release £150k (example) and we use this money to buy a home for £130k and use the £20k for fees etc? Obv no mortgage on this so only mortgage is current property.

I just asking the question - this might be ridiculous or might be something achievable - and very doable? Why would the bank say no? 

Would make us a monthly income and better than saving and could be seen a long term "pension" pot? 

I am utterly clueless, is it this simple? Would criteria would the bank want? 

Thanks for reading. 

oystercatcher

You would be asking the bank to lend you another 150K ...so your mortgage payments would increase .

RedfordML

Ahh, ok. So its another 150k loan secured against my property. So the rent gained would then be used to pay this loan back...at todays rates, might not be as lucrative as I thought...

What would I ask the bank for? A loan for another property? A second mortgage? Thanks 

Hoenir

RedfordML said:

 So the rent gained would then be used to pay this loan back...at todays rates, might not be as lucrative as I thought...

The rental income, after deduction of expenses, would also be subject to tax. Making it even less lucrative possibly. 

user1977

Yes, in theory you can take out a further advance against your existing property. Two things:

1. You're increasing the loan to value ratio to maybe c. 92% (for total £300k lending vs £325k value). The bank might not be prepared to go that high.

2. You'll need a high enough income to meet the bank's criteria for affordability. The bank won't necessarily be willing to take the hoped future rent into account.

What makes you think starting a letting business is the best thing to do with your money? You'll no doubt have seen all the other threads here about the costs and challenges involved.

Albermarle

Would make us a monthly income and better than saving and could be seen a long term "pension" pot? 

Current savings rates are around 5%, which is not much different from the yield on many rentals.

An actual pension pot would probably be a better bet, especially with the tax relief on contributions.

For sure both savings and a pension pot would be a lot less hassle and work than renting out a property, which is really better left to more experienced landlords.

[Deleted User]

Many people with a single let property are in fact selling. Mortgage rates and tax. It is usually a poor investment.

theartfullodger

Very common strategy for buying buy2lets...