Releasing Equity From Current Residential to Fund Onward Purchase

Charlie1985

Hi All,

This must be a common scenario which many people must have done. Basically we have found a new build property which is estimated by the builder to be released for sale April/May 2025 (completion Oct/Nov 2025).

We have some deposit saved and wanted to top this up by releasing some of the equity we have built in our current residential. The current residential we have is on a 5 year fixed product when ends 31st March 2025. Our understanding is as part of this remortgage we would need to switch this to a buy to let.

The issue we have is we have been told if we do this we cannot live in this buy to let. 

How have people handled such a situation in the past?  ie release equity from current home, and use the funds to purchase an onward purchase. Do we just stay keep quiet and stay in our current residential until Oct 2025?

Any guidance would be highly appreciated.

anselld

Most people do so by selling their current home rather than retaining it.  You could sell in March or shortly after and move into temporary rental or you could try to find a buyer who can wait until your new build is complete.  Or does the Developer offer part exchange?
Retaining your current home as a btl means you will incur 5% sdlt surcharge on your purchase.  If you want to do it non-fraudulently you would have to remain on svr from march until your completion and then remortgage on btl at completion.

housebuyer143

You don't have to buy it on BTL but I imagine you can't pass affordability for two residential mortgages. Most people don't do it like this, they sell then buy, or they have their original residential mortgage free and just buy the new one with a mortgage. 

Do you want to let the new place out? Or are you planning to sell it right after you move out of it? 

ThisIsWeird

Hi Charlie.
It surely comes down to the sums involved?
From what you say, you do have enough equity in your current house which, if released and added to your savings, would allow you to buy the new place outright?
If so, the only Q is - do you also have the current income to cover this extended mortgage without having to include the new rental income?
If so, that's your answer - extend your mortgage on renewal, releasing what you need from your current house's equity, and buy the new place with this. You will then own two properties and have one mortgage on one of them - which is not a BTL type.
What to do then is entirely up to you - you can rent out either. The mortgage stays as it is regardless.
What are you actually trying to achieve - own two residential homes, renting either out as wished?

Charlie1985

Hi Everyone thanks for the replies. So to clarify we have around £100k in savings. We are looking to remortgage our current residential to release a further £100k so in total we will have around £200k deposit to put towards the ongoing purchase. What this means is at the end we will have 2 mortgages but plan to rent out our current home not live in it ourselves. 

The end goal is to buy the larger family home which we need this deposit for and then rent out our current home.

The challenge/options we have is:

1. Do we remortgage our current home to a buy to let to release the funds? If so I understand we cannot live there
2. Do we remortgage to a new residential to release the funds? Then apply for consent to let.

The concern we have is we need to ensure the way  we do this it does not impact our affordability for the new larger family home we are looking to purchase.

If we went with option 2 above would lenders for the new family home mortgage just need to see an ARLA letter with the expected rental income to ensure it covers the monthly mortgage payments? This would then not factor this property in our affordability calculation.

From a timeline perspective when should we release the equity and remortgage? If we do this in April next year when the fixed rate ends would that stop us getting another residential mortgage for the new purchase which is due to be released in April/May? The only thing I can think of is the new build mortgage lender may have concerns we have just recently remortgaged our existing residential.

Just really trying to get a plan in place as this is all so confusing with many variables at play.

Hoenir

Research Let to Buy mortgages. 

kingstreet

You can apply for a LTB mortgage and delay completion until the completion of the newbuild if you have 10% to cover the deposit for exchange of contracts in the early stages.

If you're lucky and it offers them, an ERC-free tracker from your existing lender will bridge the period between current product expiry and completion of the newbuild.