How much could I borrow on a BTL mortgage?

Posted on 18 January 2008

I currently own a home worth £171K and have a mortgage of £60K left to pay off. I am looking to buy another property on a buy to let. My Salary is 38K but I would need to borrow £170K to buy the house. All the mortgage calculators I've seen take into account salary and mortgage without taking into account equity I have in my current house. Is a bank likely to loan me the money?

Many thanks for any help you can provid.

Hi Paul,
 
Yes the way that it works is that you remortgage your current property and increase the mortgage to release some equity as a large lump of cash - which will be the deposit for the new house. On a salary of £38,000 and with the property being worth £171,000, you could take your mortgage up to around £130,000 or £140,000 if you want to. £140,000 minus the £60,000 that you owe, leaves you with £80,000 cash to take to the new place.

The BTL is mortgaged purely on its proposed rent and not on your salary at all, and is expected to 'pay for itself'.  As your deposit would be as much as £80,000, you only need to borrow £90,000 on the BTL.  A lender would want the rent to be around £500 or more for the house to be considered to be 'paying for itself'.

A solicitor or accountant will be able to give you better advice in terms of the tax implications, so please speak to one, but my understanding is that clients like to put as much debt as the rent will allow on the BTL property, because you get tax relief for that mortgage.   I also recommend this for another reason; keeping the debt as low as possible on your own home, is best, to keep the risk of ever losing your home, as low as possible.

Good luck, it sounds like an exciting project.

Category: Buy-to-let, The application process explained

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