Renting out, but using equity?

dotty_totty

We currently owe approx £65k on our property, toadys market value approx £140k. We are looking to move and the property we have seen is £200k.
We will need the equity to use as a deposit on the new house and to keep the payments to an acceptable level, but a relation wants to rent our current house long term, Is there any way of keeping the rental price reasonable (£600ish p/c/m) but also releasing the money we need for new property?
:beer:

Fred1_2

You would need to look at a buy to let mortgage. These aren't as attractive as they once were.

You may be able to borrow up to 85% of the value, although 75% is more common now. 90% LTV is long gone. Your mortgage provider will require the rent to be at least 110% and probably 125% of the mortgage interest. So if, and depending on where you live, it could be a big if, the mortgage valuer agrees that your house is worth £140 000, the most you could borrow is £119 000, giving you £54k "cash" equity. But, you should allow at least £3000 for arrangement fees, solicitor's fees for the BTL mortgage. Personally, I'd allow £10k to cover all fees and expenses for both transactions - if it comes in under that, that's a nice bonus. So you'd have £44k cash, making the mortgage on your new house £156k

Going back to the rental property. If you can borrow £119k at 6% (pretty much a finger in the air figure, but shouldn't be too wide of the mark), then your monthly interest repayments would be £595. This means that you need to charge at least £654 pcm, if your mortgage company requires 110% rental cover, up to £744 if they require 125%.

If you went for a 75% LTV buy to let morgage, you'd have a wider choice and could probably get a better rate than 6%, but sticking with 6% for now, your interest payments would be £525 pcm, meaning you would need to charge at least £577 (110%) up to £656 (125%) per month. This would reduce the cash you can get out of the house by £14k, meaning your new home mortgage would be £170k.

Good luck

dotty_totty

Thanks Fred1

The rent side of things doesnt sound too bad, but didnt realise the LTV had gone so low, we would ideally need more 'cash' equity if possible, new mortgage would be too high at £150 - £170 k.

Thanks for all your explaining thought!