Can we use our equity as a deposit?

shamac

We need to move house soon and nothing is selling near us so we wondered if we could go the following route:

we have a mortgage of 142k and the house is worth £300k it is in a holiday area (ie by the seaside!).

We want to buy another house costing £230k in another area for us to live in.

Can we let out our house as a holiday or residential let and maybe convert to a buy to let mortgage? We have no deposit so could we use the equity to borrow the deposit? Income is £65k per annum clean credit history and the house would let for £800 a month or £600 a weekdoing holiday lets.

thanks.

KiKi

Hi there, yes, you can do this in theory.

However, whether now is the best time to be doing this is another matter; borrowing more money on that property obviously carries a higher risk if you can't get tenants in, or can't rent out for holiday lets.

An income of £65K would get you a mortgage of £195K comfortably, so ideally you'd have £35K deposit, which you should get no problem if your current house is worth what you say it's worth.

Consider it carefully, though; if you've never been a landlord, there are large costs involved, and you run many more risks than living there yourselves (obviously). The Landlord Zone (website) is worth a visit to help you think through the risks and what you need to contingency plan for. If you have no savings (which you seem to indicate as you say you have no deposit), then you need to carefully think through how you will pay for the mortgage if you have no tenants, how you will finance additional costs, repairs, emergency works etc in your obligations as a landlord.

The only other comment I have is that you say the house is worth £300K, but nowhere near you is selling. At the end of the day, the house is only worth what people will pay for it. If they're not buying it, then it's not worth that amount. So make sure you get a realistic valuation.

HTH you.

KiKi

sarkin

Yes you can, this is what everybody else has been doing for the last 5 years as there have been few FTB's.

you could look at it as open bridging finance.

Example:
Client cant sell house as over priced, client converts to let to buy and purchases new house. Client excepts offer on property 1 year later and sell's the btl to another BTLer with sitting tennents. As house prices have risen this now looks like a bargain