Posted on 28 July 2011 by Mike
I am considering converting my property into a buy-to-let in a couple of years and buying a new domestic property. However, I am worried that by repaying money into my current property (rather than retaining savings), I may not have enough deposit for the new domestic home. I would like the flexibility to chose how to split the equity between the two properties to achieve the best rates and returns. Can I still access value in my property if I wanted to use some equity for a different property?
I can understand your concern as you may well get a better return on your money by paying down your mortgage than you would get from a savings account, especially where you do not want to tie it in for a long period.
You should contact your existing lender to see what restrictions they have on making overpayments to your mortgage and then accessing those funds at a later date. If you are in an introductory rate period there may be early repayment charges or there may be a limit to how much you can overpay in each month or year, but If you paying the standard variable rate there would not normally be any restrictions. Some lenders allow you to draw back overpayments at a later date, especially if you have a flexible mortgage. More likely is that you will need to apply to your lender for a further advance and there can be no guarantee at this stage that they will be happy to approve such an application.
If you existing lender is not willing or able to play ball then you can consider moving your mortgage to a new provider. This is quite common and the transaction as become known as 'Let to Buy'. You remortgage your existing property on to a Buy to let mortgage, borrowing sufficient funds to repay your existing mortgage and also provide the deposit for your new residential purchase. The amount you can borrow will depend on the amount of rental income you can get, the property's value and your own personal circumstances. I regret that again there can be no guarantees so far ahead of time.
I believe that it would be a good idea to get 2 or 3 estimates from local ARLA (Association of Letting Agents) members now and the speak to one of our independent mortgage experts. They will be able to crunch some numbers for you and give you an idea of what is possible now. Please call 0344 346 3672 and tell the consultant the date and title of your question and they will then be able to offer further advice on 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.