What if you own a home, but want to rent it out so you can buy another place to live? David Jackson discusses the pros and cons of let-to-buy in his latest Q&A
The question
My mother died three years ago and left me her house in her will. I just had the property valued at €199,000.
I don’t have my own mortgage at the moment, but I want to take money out of my mother’s property to put as a deposit on someone else. In the meantime, I want to keep my mother’s house as one buy to rent.
Can this be done and would you recommend this as the best way to start on the property ladder?
David’s answer
Yes, you can, but first it’s important to know that you’re already on the property ladder as you own a house without a mortgage. This gives you a strong financial position.
If you are interested in building a property portfolio, what you describe is known as a ‘let-to-buy’ scheme. This involves renting out your current home, taking out a buy-to-let mortgage and then using the released equity as a deposit for the purchase of another property. property.
However, there are a few important considerations to keep in mind:
- You cannot release all the equity in the property. Lenders allow you to release a certain percentage of equity based on the rental value of the property, which you can then use as a down payment for your next purchase.
- You must take additional stamp duty into account. This is because your next home purchase is considered a subsequent home.
- You will also be subject to the standard mortgage review process. This takes into account your income, the deposit and other factors such as stamp duty.
While you won’t be able to come up with all the equity, you should be able to free up enough to make a substantial down payment on your new home mortgage. At the same time, you take out a buy-to-let mortgage on your existing home. This is the essence of a let-to-buy strategy.
The key to making this work is seeking advice. It is essential to assess how much you can borrow on a buy-to-let basis for your current home and how much you can borrow for the next purchase.
It is crucial to talk to a mortgage advisor. They can help you plan everything, set realistic expectations and budgets, and guide you in finding your next home.
Meet our expert…
David Jackson founded Prestige private financing in 2014 after nearly two decades in the mortgage industry. With experience in London’s high net worth areas, David and his team offer empathetic and expert advice for your financial journey.
If you have a question for David, please email [email protected] or leave a message in the comments below.