Posted on 7 March 2012 by Steve
I have about £39.000 left on my fixed rate mortgage with Natwest. The value of my house is about £165.000. What's the best way for me to raise about £100.000 to buy a 2 bed flat to rent to my daughter?
There are two ways of doing this and both have their pros and cons.
You can apply for a residential mortgage on the new flat as a home for a dependent relative. Usually a lender will let you borrow between 75% - 80% of it's value and the balance you would need to raise against your own property, unless you have sufficient savings. Your income will need to be sufficient to support both your existing mortgage and any new borrowing. By raising the funds this way you are likely to benefit from both cheaper rates and cheaper fees than by buying the property as a residential investment (buy to let).
Buy to Let mortgages are available up to 85%, although your choice will be restricted because a member of your immediate family will occupy the property. This means that any lending will be regulated by the Financial Services Authority and this prevents the "unregulated" mortgage lenders from helping you out. However, the amount you can borrow is governed by the anticipated monthly rental and not your earned income. Typically lenders will look for the rent to cover at least 125% of the monthly interest payment. There may also be some tax advantages available to do with setting off the interest you pay against the rental you receive, but you would need to take specialist tax advice on this.
I believe we can help you and that you would benefit from speaking to one of our independent mortgage advisers. Please call 0344 346 3672 and tell the consultant the date and title of your question, they will then be able to help you find the right mortgage for your situation.
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.