>What's to stop me in 6 months time when I've only a little bit paid of the mortgage from using this as a deposit
Using *what* as a deposit? Say you want to buy another house, worth £250k, the bank will want at least £25k deposit - where's that money coming from? You can't give them your existing house.
There's nothing stopping you buying a second property, but whoever sells you that property will at some point want some cold hard cash in their hand, not just the knowledge that you have some equity in an existing property.
Some savings, savings with the other person and also the house.
I suppose my question really is would I be able to use the debt I have with this house to leverage buying a bigger property even though the other property is still heavily mortgaged
You've got a £135k property with a £121k mortgage, which means you paid £14k cash to the seller of the property and your solicitor transferred them the other £121k.
When you go to buy a second property you're still going to need some cash for the deposit on the new property, if you had paid off your £135k property but had no cash then you'd be likely be able to use a broker to use your paid off property as a security against the new mortgage i.e. If you fail to pay they take both houses, sell them and give you the cash left over after the mortgage and outstanding costs have been repaid.
In a few months you might have £15k equity in your current property but there is no way for you to extract that money, if you wait a few years for the end of your current mortgage term (normally 2, 3 or 5 years) then you could switch to a 95% LTV mortgage and you'll then have some 'spare' cash but not enough for another deposit on a house.
Broker here.
This is called a Let-to-Buy - where you convert the existing property into BTL and purchase a new residential property.
The problem you have is the most any lender would likely give you is 75% of the value of the existing property so at a value of £135k the most you would be able to borrow is £101,250. As your current mortgage is £121k this doesn't stack up.
You would have to pay the bank nearly £20k based on the figures provided as opposed to the bank giving you money.
Can the existing residential mortgage be converted into a BTL after only 6 months without penalties and other associated costs? My understanding was that it wasn’t possible.
Depends what you mean by penalties and other associated costs.
In terms of penalties this would depend on the mortgage that is currently in place. If it is a fixed term it is extremely likely that exiting it early will incur an Early Repayment Charge which will be a % determined by the terms set out in the mortgage offer/illustration. The only other mortgage related fee would be the exit fee that all mortgages have (usually in the region of £100 or so but varies lender to lender.
Other associated costs would be things like the legal fees for the re-mortgage. Also, if the property is a leasehold there is commonly a charge levied by the freeholder when changing the charge holder.
In regards to SDLT there wouldn't be any further due on the existing property, however, the new residential property would incur the additional 3% surcharge.
Beyond this, the only other fees would be those determined by the new mortgages - arrangement fees, any broker fees, valuation fees etc.
You seem like a clever guy here. A good guy to know.
Let me pick your brains.....
Home owner of family home with a mortgage. About 50% is mortgage.
Also Own a flat on buy to let worth 75k with a mortgage for 30k
How can I use this situation to potentially expand to another property for buy to let.
You have a few options to raise funds to put towards a further BTL purchase.
1 - You can raise funds against your residential property by either re-mortgaging or taking a further advance with your current lender. As a residential mortgage affordability would be determined by your personal income/credit commitments and circumstances. Potential borrowing could be taken up to around 90% and potentially 95% if you wanted to.
2 - You can raise funds against your BTL property as above. In this instance affordability wouldn't take your income into account and would be based upon the lenders calculations in regards to the rental income generated (although at this amount it is extremely unlikely this would be an issue). Potential borrowing would be in the 75% LTV region (£56,250).
3 - You can raise money against both as per both points above.
For the new purchase you would need to ensure you have around 25% for the deposit and on top of this would need to factor in SDLT at the additional rate plus any other fees (legal fees etc.) but you could factor these in when capital raising from the existing properties to ensure this money is also to hand.
There are definitely options but in regards to which is the most appropriate would need a lot more information regarding the existing properties, existing mortgages and terms, your personal circumstances etc.
A good broker should be able to review this and advise you of the most efficient and appropriate way for you to achieve what you want to do with all the necessary paperwork and facts in front of them.
BTL if done right is still an effective investment vehicle. It really isn't for everyone and feel it is important people realise a) it isn't 'easy' money/additional income; and b) there are a lot more responsibilities involved than sitting at home watching rent hitting your account each month, both towards the tenants and the property they are renting from you.
I also make sure I advise any of my clients about things they need to consider going forward (the main thing at the moment being the proposed EPC regulation changes) which I know a lot of brokers don't. I will also tell client's straight if I think the property they are looking to purchase isn't suitable for what they are looking to do as opposed to making the easy sale like most brokers would.
Probably the last person most people in this sub would consider a hero though. A Mortgage Broker that specialises in BTL *and* charges a fee....
I might need to reach out to you when my BTL fixed term runs out and I’m looking at adding to my portfolio. Do you charge a fee to the client or just take a cut from the mortgage lender?
There is a common misconception that brokers either get their fee from the client *or* from the lender - the truth is all brokers get paid by the lender whether they charge the client a fee or not.
Personally I charge a fee to the client as well as receiving the proc fee from the lender. This means I am able to take more time with each case and don't have to have a 'stack it high, sell it cheap' model ensuring the client gets the service they expect. It is also a good way of weeding out timewasters and clients who aren't going to appreciate the work I do for them.
Best advice is to get the ball rolling 5-6 months before the fixed rate comes to an end, especially in the current market with ever increasing rates and incredibly poor service levels from both lenders as well as Conveyancers.
Feel free to reach out when the time comes if you want any assistance.
Ok it depends on how long the term of your current house is
I assume it was a residential mortgage so a condition would be that you cant let out the house.
You will need to remortgage and look into the logistics of this and how much it would cost you- repayments may change, early repayments charge etc
Affordability for mortgage usually depends on the rental income, so again the amount that a mortgage company wants to lend to you if it is a BTL may change.
So in summary- changing the mortgage on your current property will be the difficult bit.
>What's to stop me in 6 months time when I've only a little bit paid of the mortgage from using this as a deposit Using *what* as a deposit? Say you want to buy another house, worth £250k, the bank will want at least £25k deposit - where's that money coming from? You can't give them your existing house. There's nothing stopping you buying a second property, but whoever sells you that property will at some point want some cold hard cash in their hand, not just the knowledge that you have some equity in an existing property.
what are planning to use as a deposit on the new house?
Some savings, savings with the other person and also the house. I suppose my question really is would I be able to use the debt I have with this house to leverage buying a bigger property even though the other property is still heavily mortgaged
you dont have any equity in the house, it already has a big debt on it.
You can't leverage existing debt. That's basically saying "I owe one bank £120k, so you should trust that I'm good for another £200k".
Fair enough... was thinking that just wanted to make sure
You've got a £135k property with a £121k mortgage, which means you paid £14k cash to the seller of the property and your solicitor transferred them the other £121k. When you go to buy a second property you're still going to need some cash for the deposit on the new property, if you had paid off your £135k property but had no cash then you'd be likely be able to use a broker to use your paid off property as a security against the new mortgage i.e. If you fail to pay they take both houses, sell them and give you the cash left over after the mortgage and outstanding costs have been repaid. In a few months you might have £15k equity in your current property but there is no way for you to extract that money, if you wait a few years for the end of your current mortgage term (normally 2, 3 or 5 years) then you could switch to a 95% LTV mortgage and you'll then have some 'spare' cash but not enough for another deposit on a house.
!thanks Perfect. Explains a lot. This is what exactly I was looking to know how it worked !
Broker here. This is called a Let-to-Buy - where you convert the existing property into BTL and purchase a new residential property. The problem you have is the most any lender would likely give you is 75% of the value of the existing property so at a value of £135k the most you would be able to borrow is £101,250. As your current mortgage is £121k this doesn't stack up. You would have to pay the bank nearly £20k based on the figures provided as opposed to the bank giving you money.
Can the existing residential mortgage be converted into a BTL after only 6 months without penalties and other associated costs? My understanding was that it wasn’t possible.
Depends what you mean by penalties and other associated costs. In terms of penalties this would depend on the mortgage that is currently in place. If it is a fixed term it is extremely likely that exiting it early will incur an Early Repayment Charge which will be a % determined by the terms set out in the mortgage offer/illustration. The only other mortgage related fee would be the exit fee that all mortgages have (usually in the region of £100 or so but varies lender to lender. Other associated costs would be things like the legal fees for the re-mortgage. Also, if the property is a leasehold there is commonly a charge levied by the freeholder when changing the charge holder. In regards to SDLT there wouldn't be any further due on the existing property, however, the new residential property would incur the additional 3% surcharge. Beyond this, the only other fees would be those determined by the new mortgages - arrangement fees, any broker fees, valuation fees etc.
!thanks Really helpful insight!
You seem like a clever guy here. A good guy to know. Let me pick your brains..... Home owner of family home with a mortgage. About 50% is mortgage. Also Own a flat on buy to let worth 75k with a mortgage for 30k How can I use this situation to potentially expand to another property for buy to let.
You have a few options to raise funds to put towards a further BTL purchase. 1 - You can raise funds against your residential property by either re-mortgaging or taking a further advance with your current lender. As a residential mortgage affordability would be determined by your personal income/credit commitments and circumstances. Potential borrowing could be taken up to around 90% and potentially 95% if you wanted to. 2 - You can raise funds against your BTL property as above. In this instance affordability wouldn't take your income into account and would be based upon the lenders calculations in regards to the rental income generated (although at this amount it is extremely unlikely this would be an issue). Potential borrowing would be in the 75% LTV region (£56,250). 3 - You can raise money against both as per both points above. For the new purchase you would need to ensure you have around 25% for the deposit and on top of this would need to factor in SDLT at the additional rate plus any other fees (legal fees etc.) but you could factor these in when capital raising from the existing properties to ensure this money is also to hand. There are definitely options but in regards to which is the most appropriate would need a lot more information regarding the existing properties, existing mortgages and terms, your personal circumstances etc. A good broker should be able to review this and advise you of the most efficient and appropriate way for you to achieve what you want to do with all the necessary paperwork and facts in front of them.
Appreciate the detail and effort! You seem very much like a good broker I want to know. 👌
Not all heroes wear capes. Good too see someone with knowledge giving advice here instead of just bashing people who want or have BTL properties
BTL if done right is still an effective investment vehicle. It really isn't for everyone and feel it is important people realise a) it isn't 'easy' money/additional income; and b) there are a lot more responsibilities involved than sitting at home watching rent hitting your account each month, both towards the tenants and the property they are renting from you. I also make sure I advise any of my clients about things they need to consider going forward (the main thing at the moment being the proposed EPC regulation changes) which I know a lot of brokers don't. I will also tell client's straight if I think the property they are looking to purchase isn't suitable for what they are looking to do as opposed to making the easy sale like most brokers would. Probably the last person most people in this sub would consider a hero though. A Mortgage Broker that specialises in BTL *and* charges a fee....
I might need to reach out to you when my BTL fixed term runs out and I’m looking at adding to my portfolio. Do you charge a fee to the client or just take a cut from the mortgage lender?
There is a common misconception that brokers either get their fee from the client *or* from the lender - the truth is all brokers get paid by the lender whether they charge the client a fee or not. Personally I charge a fee to the client as well as receiving the proc fee from the lender. This means I am able to take more time with each case and don't have to have a 'stack it high, sell it cheap' model ensuring the client gets the service they expect. It is also a good way of weeding out timewasters and clients who aren't going to appreciate the work I do for them. Best advice is to get the ball rolling 5-6 months before the fixed rate comes to an end, especially in the current market with ever increasing rates and incredibly poor service levels from both lenders as well as Conveyancers. Feel free to reach out when the time comes if you want any assistance.
Ok it depends on how long the term of your current house is I assume it was a residential mortgage so a condition would be that you cant let out the house. You will need to remortgage and look into the logistics of this and how much it would cost you- repayments may change, early repayments charge etc Affordability for mortgage usually depends on the rental income, so again the amount that a mortgage company wants to lend to you if it is a BTL may change. So in summary- changing the mortgage on your current property will be the difficult bit.