Posted on 2 December 2014 by Ian
I want to move to a larger home, and want to let-to-buy my current home instead of selling it. My current home is a 2-bed London flat valued at £850K, and I currently owe £400K mortgage on it. If rented out, the expected rental is around £2400 pcm. I want to release about £200K from the equity on my current home (keeping its LTV to under 75%) to use the cash as a deposit for the next larger home. I have about £50K cash savings and for about £250K deposit I’m hoping I can find a residential mortgage of 75% LTV to buy my new larger home for ~£1m. My annual basic salary is £116K plus bonus, and I’m 48 planning retirement at the age of 75. Is the above scenario feasible?
With the information you've provided, this looks like a stretch, and I can only say that it might be feasible.
Looking at the current property first, most lenders will use a calculation to assess the suitability of the loan against the rental income, and typically this is that the rent covers the mortgage payment by 125% based on a notional rate of 5%. This would give us a loan of approx £460k. We'd need to use a lender that calculates the rent at 125% of the pay rate and there's only a very few of those.
Also if we look at the new main residence, and try to get a loan of £750,000 based on your salary of £116,000 this equates to around 6.46 times income which lenders would deem unaffordable. Therefore a lot depends on the size of your bonus and also the track record of earning it. Then there's also the rest of your outgoings that can also have a large bearing on affordability.
If you'd like to explore your options in more detail, then please contact one of our consultants on 0344 346 3672 and they'll be able to give you a clearer idea of what we might / might not be able to do.
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