Release equity in my house

Answered on 12 November 2016 by Nick Morrey

I have a house valued at around £90,000 and owe around £38,000 mortgage. I am wondering if I could somehow release the equity and rent this house out allowing me to purchase a new house with my boyfriend. Other very similar houses are renting for around £500/month.

What you are looking to do is known as a "let to buy", whereby you capital raise on your existing property at the same time as moving it onto to a buy-to-let basis. You then use the funds raised as the deposit for your new main residence.

Borrowing for Let to Buy

Typically most lenders cap the borrowing on your current property at 75% of the value (though there are a few who do go higher), which means that we could raise the mortgage to £67,500, which after settling the current loan of £38,000 would give you £29,500 to put towards the deposit on the new property. The loan can also sometimes be restricted by the level of rental income received, with lenders typically looking for the rent to be a minimum of 125% of the monthly payment at either the pay rate or a notional rate (say 5%). Either way in your case there seems to be easily enough rent to cover this.

At the same time we would then arrange a main residence mortgage for you & your partner for your new home. One of the real plus points of 'let to buy' is that we can choose from the whole of the mortgage for both mortgages, rather than one lender to do both.

If this sounds of interest to you, then please submit an enquiry and we'll arrange for you to speak in more detail to one of our consultants.

Answers provided in response to Ask the experts are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.

We recommend you seek professional advice with regard to any of these topics where appropriate.


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