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Is it possible to rent out our almost unencumbered current home, and buy a new one at 95%, or is there a better way?

Posted on 1 November 2013 by Suki


Hello, Our current home has very little left in mortage payments (£2k), but we will need a bigger house soon and we were wondering if we could keep our current property, pay off the outstanding loan and buy a new house with a small deposit say £10k for a new house at £270k? However we would like to rent our previous house to help with the mortgage payments for the new house, so we have the old home as investment. Is this possible?

Suki,

In principle it is just about possible to do what you suggest and buy the new property with a very small deposit (5%), however this will leave you with a very limited choice of lenders, and significantly higher interest rates than you  really need to pay.

What you could look to do instead is a "Let To Buy", whereby you capital raise on your existing property at the same time as moving it onto to a Buy To Let basis. You then use the funds raised as the deposit for your new main residence.

Typically most lenders cap the borrowing on your current property at 75% of the value (though there are a few who do go higher), which means that we could raise a mortgage to put towards the deposit on the new property. The loan can also sometimes be restricted by the level of rental income received, with lenders typically looking for the rent to be a minimum of 125% of the monthly payment at either the pay rate or a notional rate (say 5%).

At the same time we would then arrange a main residence mortgage for your new home, and we would have a far wider choice of lenders and much lower rates as the loan to value, would be much lower than originally proposed.

One of the real plus points of 'Let To Buy' is that we can choose from the whole of the mortgage for both mortgages, rather than one lender to do both.

If this sounds of interest to you, then please let me know when you are available, and I'll arrange for you to speak in more detail to one of our consultants.

Regards,

Simon

simon.collins@johncharcol.co.uk

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