Can you remortgage the house you own to rent out the property?

Answered on 14 November 2018

We own our property outright. Valued at £145k. The rental appraisal is valued at circa £600pcm. We have a further cash sum of £40k. We would like to rent out our house and buy somewhere with a value of around £260k, is this possible? My earnings are £25k before tax.

Remortgaging a house you own outright

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.

How much could I borrow?

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 a mortgage of £108,750, which you would add to the £40,000 to go towards the deposit on the new property. The loan can 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%). Use our minimum rent calculator to see how much you would need to charge, but 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 for your new home, in the region of £111,250 which with your earnings of £25,000 should be fairly straight forward to achieve.

Let-to-buy benefits

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 call us on 0330 433 2927 and we'll arrange for you to speak in more detail to one of our consultants.

Ask The Mortgage Experts answers 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.