How can I use my current property to buy one worth twice the amount?

Posted on 28 March 2008

Hello Katie,

I own a property worth about £80,000 with £14,000 owing. I want to buy a new one at £179,995 with 5% deposit paid by the builder. Would it be sensible to turn my current mortgage into a buy to let, taking £16,000 equity thus leaving £50,000 in the property. Then put £30,000 into the new one so I would need a mortgage of £140,000. I earn £36,000. I was thinking of getting the new one on interest only, for two years, so I could manage the payments, then sell the old property and put the £50,000 into the new one leaving £90,000 to pay and convert it to a repayment. I only have 15 years until retirement and will have about £40,000 lump sum. Is this a realistic way to get the property I want or am I being silly?

Hi Trudi,

You have absolutely the right idea there.  Although to keep your mortgage more manageable, instead of going interest-only you could raise more money out of the let-out property (you only need to leave 15% in there so £12,000) giving you a bigger deposit on the new place.   Don't forget you'll be getting rent on the old one, which will pay the mortgage.

People normally switch the let-out one to interest-only, and make their own home Repayment - 1. so that their home is the more secure one and  2. (check this with a tax advisor/ accountant as I am not a qualified tax advisor) you pay income tax on your profit between rent and interest payments on the buy-to-let house, so you're best to raise as much as you can out of it and keep the interest payment on that one higher.

If you want the quotes for doing this now please contact a Whole of Market Fees free broker such as Charcol 0800 358 55 60 www.charcol.co.uk.

Category: New build

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