How much Can I Borrow part 2

Posted on 24 January 2011 by Danny kilgannon


I live in a property which is worth £400.000 . We borrowed £160.000 from the bank. So we have £240.000 equity. We want to rent this property out and purchase a new one which we will live in. How much would we be able to borrow?

Danny,

Thank you for clarifying your intentions, the answer to your question is now slightly different whilst remaining essentially the same as before.

Unless you have savings in the background you will need to release some of the equity from your existing property to put down as the deposit on a new property. The amount you will require will depend on the purchase price of the new home, how big a mortgage you can obtain on this and how large a mortgage your rental income will support on your existing home.

As far as the new property is concerned the majority of Lenders will ignore a self supporting buy to let mortgage and not make any deductions from your income. Each of the High Street Lenders has a calculator on their website and without knowing how much your monthly credit commitments are the results range from £150,000 - £185,000.

With regards to your current property the amount you can borrow will be restricted by the rental income it can command. Your current mortgage is £160,000 and as a rough figure you will need to get £835 per month to just cover that. Unless you have substantial savings you will need to borrow against this property to provide a deposit for your new home. The best residential rates are available between 60 - 75% LTV and working on a new loan size of £175,000 this would mean finding a deposit of between £58000 - £116,665. This in turn would mean the monthly rental needed to cover the increased Buy to Let mortgage would be between £1135 - £1440.

Clearly the amount you can borrow on your existing property is going to be determined by the monthly rental it can achieve. I suggest that you visit at least 3 different Letting Agents to get a feeling for what this figure would be. If possible get recommendations from your friends or family. Once you know this it will be possible for a mortgage broker to research the Buy to Let market and give you an accurate idea of how much you can borrow and what it will cost. This in turn will give you an idea of the size of the deposit available and how much you can borrow for your new home purchase.

I recommend that once you have an idea of the rental your existing property can achieve you contact an independent mortgage broker to research both the Buy to Let and Residential mortgage markets on your behalf.

Peter

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