We have equity in our home, can we buy a second property?

RedfordML

Both myself and my partner are in our 40s and we have built up around £190k equity in our home and just wondered if we could somehow use this to put towards a second property, to rent out and long term become a retirement nest egg. 

How do we go about this? Or is it not possible? 

We have a 750pcm mortgage, we have joint earnings of 90k. Our current home is valued at £325k and we have a 140k mortgage left to pay. 

Any advice would be great. Thanks 

Emmia

Do you have any experience of being a landlord? Could you cover two mortgages if the property is empty or the tenant failed to pay?

RedfordML

Never been a landlord. We could cover two mortgages around 1.5k as we overpay and save from current wages. 

How would we go about getting a second mortgage / getting access the equity? 

Bigphil1474

Yes you can, but you need to work out what you can afford in total including existing mortgage. You will not be able to use the full £190k equity towards a second purchase (you'll need to keep some equity in the existing property), and unless you've had the house valued recently, you'll need to get that done before you know what you can actually borrow - might be different to what you think. Bear in mind there will be extra stamp duty to pay as it's a second property and there are all the issues of being a landlord and a BTL mortgage is normally more expensive. It's not a straightforward option, but is doable. Try a mortgage broker. 

Keep_pedalling

I would suggest rather than overpaying you contribute more to your pension funds it is a more tax efficient option and avoids the hassle of being a landlord. 

RedfordML

Thankyou for your advice. Can we open private pension pots at anytime? Are these used like a savings account or does the company we use, access our wages? Very new to private pensions...

Keep_pedalling

RedfordML said:

Thankyou for your advice. Can we open private pension pots at anytime? Are these used like a savings account or does the company we use, access our wages? Very new to private pensions...

What are your pension arrangements with your current employers? 

Albermarle

RedfordML said:

Thankyou for your advice. Can we open private pension pots at anytime? Are these used like a savings account or does the company we use, access our wages? Very new to private pensions...

If you have a workplace pension, you can usually just ask the employer to increase your monthly contributions.
If you are not knowledgeable about pensions/investments/being a landlord, then adding more to your workplace pension would be a far easier way to save for your retirement.

Bigphil1474

As above, ask your employer about AVC's - additional voluntary contributions. You need to weigh up the pro's and con's. If you are gonna drop dead the day after you retire, they won't be worth it. If you are gonna have a decent income anyway, they may not be worth it. Private pensions tend to be worse than work ones, as with work ones the employer also contributes. You might need specialist advice on pensions.

saajan_12

RedfordML said:

We have a 750pcm mortgage, we have joint earnings of 90k. Our current home is valued at £325k and we have a 140k mortgage left to pay. 

Any advice would be great. Thanks 

Theoretical numbers: 
* Remortgage when up for renewal or take out a second mortgage of max £150k on your current property, which would take your LTV up to 90%. 
* Put that towards deposit + costs for another property worth up to £525k. Deposit = 131k, SDLT = 16k, costs = 3k. 
* Take out a BTL mortgage of 394k at 75% LTV. 

So theoretically possible depending on the rental yield at the rental property. However you also have to think about whether it makes sense - you'd be borrowing all of your investment and would have keep paying on the debt even if no tenants. You can get good yields in a stocks and shares portfolio either in a pension, ISA or general account. 

MEM62

RedfordML said:

Both myself and my partner are in our 40s and we have built up around £190k equity in our home and just wondered if we could somehow use this to put towards a second property, to rent out and long term become a retirement nest egg.  

You might want to do some research on the risks and realities of being a landlord.  That should put you off the idea.  The days of BTL's being a good investment are long gone.