Dear Enhanced Wealth
My wife and I own the property that we live in outright. We have had it recently valued by a local Estate Agent at a value of around £145,000.
One of our friends said that rather than sell we could keep the property, rent it out and buy on?? Problem is we have no deposit for the onward purchase.
We have often spoken about investing in property for our children’s future and if possible this seems like a good way to go about it. Could you offer us some advice please?
What you are proposing to do is now quite a common way of investing in property. The mortgage industry’s term for the process is “Let to Buy”.
A let to buy arrangement allows an applicant to let their current property which becomes an investment, whilst purchasing a property to live in.
To answer your question the deposit required to fund the purchase is provided by a re-mortgage of the property to be let using a Buy to Let mortgage. The size of loan is based on how much capital is required for the deposit, the value of the property, lenders loan to value (LTV) limits and the proposed rental income as confirmed by a lender’s appointed valuer.
It’s important that both the Buy to Let mortgage and the mortgage used to fund the residential purchase are considered simultaneously as the two loans are intrinsically linked. So as an example, the buy to let lender may be happy about the purpose of the intended loan, the proposed residential lender may not agree on the basis of LTV on the buy to let and or rental coverage based on their financial stress test. As such if the wrong lenders are chosen the arrangement may falter at an inappropriate time, leading to loss of the intended purchase.
There are quite a few considerations that can catch out someone new to the process, so advice is essential to avoid a costly mistake.
Rather than going into too much technical detail here, if you’d like to discuss the potential for a Let to Buy arrangement, please call out specialist consultant Kerry on 020 8301 7930
Regards, Norman Phillips