Capital Raising for Commuter Home

Posted on 6 November 2010 by Helen

I have a UK property valued at approx £315k with a mortgage of £240k. I also own one overseas property valued at £60k (no mortgage) and another one valued at £130k (mortgage of £100k) - this earns a guranteed rent of 4%.

I am now looking to buy a small studio flat for approx £100k close to where I work to cut down on commuting.

 What is the likelihood of getting a mortgage for this and using equity in my other property as a deposit?

 My basic salary is £80k.


Depending on your personal circumstances I think there is a chance of being able to do this.

There are still a good choice of Lenders who will consider granting a mortgage on a second property, so long as you have the income to cover the combined debts of any other mortgages as well. This is where you may have problems. The guaranteed rental of 4% may not be sufficient to cover a mortgage of £100,000 in the eyes of some Lenders and they would then be looking for your earned income to cover debts totalling £440,000. This will be over 5 x your basic salary and the is not much appetite amongst Lenders for this level of borrowing.

You also need to be aware that your choice of studio will also determine whether or not you will be able to raise a mortgage. Studio flats tend to be among the first to get repossessed in difficult times and can be quite difficult to sell on. For this reason Lenders impose a size, anything less than 30 sq metres will be difficult to get a mortgage on and are very particular about the property's location.

How you fund the purchase will depend very much on your existing mortgage deal and whether or not your Lender will consider extending this or offer you a Further Advance for the additional funds. You will need to weigh up the terms they offer you to determine how much you raise for the deposit. The more you can raise then the better the rate will be on the new mortgage. However, as the larger per-centage of borrowing will be on your main residence you do not want to spoil the rate on this for a slightly better rate on a smaller mortgage.

I recommend that you speak to an independent mortgage broker about you plans and take their professional advice.


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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