Remortgaging to buy a 2nd property

[Catarinah]

Hi all. I'll attenpt to keep this as simple as possible in an attempt not to bore you, but wondering if anyone has experience of remortgaging their home to relsease equity to buy a 2nd home?
So we are home owners and bought our home August 2018 for 132k, we are due to remortgage next August. We need to move to a bigger house (currently in a 2 bed, need a 3) so are thinking of doing this next year, but my boyfriend is keen to remortgage our home to release some equity to buy our next property, and rent our current home out (there is a market for renting where we live). Has anoyone done this and could shed some light on it?

How much equity do you have in your home and how much do you need to buy the next one? Are you able to prove how much rent you will get for your Current property?

Yes we did this.

Put first house on a buy to let, released a load of equity and bought 2nd house with the spare cash.

You need to leave 25% equity in house number 1
The amount of mortgage on house 2 isn’t dependent on house 1 (as that’s calculated on value and rental,possibility of house 1)

Remortgaging house 1 is the easy bit. Get a free, whole of market broker

You need to look into legal responsibilities of being a landlord... that’s harder.

Happy to answer any specific questions

We are thinking of doing this as well! We don’t have a mortgage so would have 100% equity but want to keep the original flat as a long term investment.
I read that the rent needs to be 125% of the mortgage monthly payment. Someone also suggested to me that we do it as a interest only so the repayments are lower and if there is a gap between tents you have less to cover.
I hope more people come along soon who can help!

I was thinking of remortgaging my home to buy a rental property. Or rather buy a property I can rent to a family member long term.

Is that possible, I have no mortgage currently and own my home outright

Yes we’re doing this. You need enough equity to split between the two properties so you can still access a good mortgage deal, and bear in mind you pay stamp duty on the new house at the buy to let rate (no stamp duty holiday for that bit), plus legal costs higher. Best to use a mortgage broker.

It is risky particularly at the moment, so you should be satisfied with job security , rental market, paying both mortgages if it’s empty. And factor in costs of renting and tax on the rental income. It’s hard to make a profit on rental income, you need to do your sums.

Seems like we need to do a lot of research. Is it a financial adivsor that we need to see or a mortgage advisor? Or both?!

I would speak to an IFA because they can advise on the tax implications as well as the mortgage aspect.

When you sell a second home, you pay Capital Gains tax too. That’s currently 18 percent of the gain less and annual allowance I think.

You will have two lots of maintenance, and you will need to fix things promptly in a rental home. You also have to factor in that tenants don’t always treat a property as you would.

I’ve rented out houses. I have borrowed against our main house to buy a holiday house but it was a fraction of the value of this house and was a small proportion of the holiday house. That’s a business so we get a tax break for this expense.

You need to look at all possibilities and methods of payment. I wouldn’t do a long term let for a relative. What if you fall out with them? What if you need to sell? It’s not a great investment either if you can never get your hands on it!

GCT when you sell, obviously!

I would advise against anyone doing this until they have taken a course in how to be a landlord, statutory duties and the legal framework. Agents are crap and you have to make sure they carry out their duties properly, you can't rely on them knowing the law, many don't. Times are extremely difficult in the PRS at present with evictions taking up to a year and little sign of improvement. If they stop paying rent, you have to be able to live comfortably and pay both mortgages comfortably without any rental income. You also need around a 10k contingency for maintenance and repairs. Personally I wouldn't purchase a btl at the moment because next year prices may drop and although negative equity is only an issue if you want to sell, most btl investors are also looking for capital growth in the mid term. Brexit and covid are difficult trading partners.

Place marking

@Lineofconcepcion are there any particular courses you’d recommend?

I'm a former solicitor, practised in ll and tenant so have not personally done a course, but some posters on other sites have recommended NRLA courses.

Thank you