My flat's now worth £145,000 with mortgage of £60,000. Can I rent it out, release some of the equity and use as a deposit for a new home?

Posted on 24 June 2014 by Debora

I have owned a flat for 9 years. I originally bought the property (2 bedroom) for £80,000 and the mortgage is now sitting at around £60,000. It is now valued at around £145,000. Would it be possible for me to rent this property out and still release enough equity to enable me to put down a decent deposit on a subsequent property?

What you are looking to do is known as 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 the mortgage to £108,750, which after settling the current loan of £60,000 would give you £48,750 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%). Either way in your case there seems to be easily enough rent to cover this.

At the same time we would then arrange a main residence mortgage for your new home. 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 you'd like to discuss your options in more detail, then please contact one of our consultants on 0344 346 3672 and they'll be able to give you an idea of how we can help.

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.

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