Posted on 25 January 2011 by Ian
My 2 year original mortgage with LLoyds TSB expires in May. The property was bought at 170,000 for which we raised a mortgage of 153,000. We raised a loan of 15,000 for renovations for which we are repaying monthly. The house is currently valued at 215,000. We both earn 35,000. Are we able to release any equity from the property to invest in a second. We are not married, the current property is in both our names. How could we buy a second property for 160k - 170k?
The cheapest way to raise additional funds on your existing property would be to get a Further Advance from your existing Lender. Lloyds TSB will allow you to borrow up to 80% of the property's value, unfortunately this would only release £19,000 if they agree with your valuation. Their are Lenders who will consider a remortgage up to 90% LTV, which would release £40500. They will normally cover your basic legal costs and provide a free valuation. The down side of remortgaging is that you will lose the very competitive rate of Bank Base Rate +0.50% that I think you will revert to in May.
The easiest way of buying a second property would be to purchase one for future rental. When looking at the affordability of Buy to Let mortgages, Lenders want your monthly rental to cover the interest only payment plus a margin of up to 30%. i.e. a monthly mortgage payment of £1000 would need a rental income of £1300 to be acceptable. The exact margin differs from Lender to Lender and product to product. The reason for they ask for this margin is to make sure that you have sufficient funds to cover routine maintenance, unexpected outgoings and rental voids. A deposit of £40,000 would allow you to look at properties in the region of £160 - £170,000 and qualify for some very good BTL mortgage rates.
I recommend that you speak to an independent mortgage broker. They will be able to give you advice on the best way to proceed and if appropriate research the best mortgage rates and repayments methods available for your circumstances. You need to be aware that the value of property, like all investments, can go down as well as up.
Please also refer to my answers to How much can I borrow parts 1 and 2.
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