Can I take money out of my existing property to help buy a new one?
Short answer, yes. There are many reasons you can take equity out of your property and to help you buy a new property is one of them. There are a few areas to watch out for though and many hurdles to overcome.
There are two common ways people do this that we’ll explain below.
- What is a ‘Let to Buy’?
One way people use their existing equity to help buy additional property is a Let to Buy scenario. This is where they take money out of their residence, change the mortgage to a Buy to Let in the process and use the funds released to help buy a new residential property to move into.
The tricky bit with this scenario is meeting the criteria for both a Buy to Let mortgage and the mortgage for the onward residential purchase as the amount you can borrow in for each type of mortgage is calculated completely differently. There is also a bit of a ‘chicken and egg’ scenario as most people would like the money in their account in order to be in a stronger position when they find a new place but many lenders won’t allow this. Lenders that will help with a ‘Let to Buy’ scenario normally require ‘Simultaneous Completion’. i.e. They want the new purchase to complete at the same time as the remortgage for the deposit funds. It sounds a logistically nightmare but it is something great brokers and great Conveyancers deal with regularly.
- Using equity in my existing residential to help buy an investment property.
Another way people look to use existing equity to help them purchase is to use the equity in their existing residence. Although a little more straight forward than the ‘Let to Buy’ scenario detailed above, it still comes with its own hurdles. Residential mortgage lenders are usually quite happy to allow you to raise money for this purpose but they are likely to put loan to value restrictions in place as well as needing details of the new purchase property and insist on ‘Simultaneous Completion’ again.
The first step into investigating this would be for us to run through affordability calculations and to understand your goals for the new purchase. If this new property is going to be a Buy to Let property we need to make sure we are able to raise enough for the necessary larger deposit and also that the mortgage needed on this purchase meets Buy to Let affordability and criteria. If the new purchase is going to be a holiday home for you or a second residential property, we need to assess how this new property (and the potential mortgage on it) will impact your affordability and therefore, how much you can raise.
Again, it sounds complicated but it’s something we do day in, day out so would be happy to discuss to see what’s possible.
Real life Example
We were contacted by David, a portfolio landlord. He currently owned 10 buy to let properties and his family, residential home, all with mortgages. He was hoping to sell his existing residence and purchase a new, larger residence outright using equity from the sale and by raising money on a number of his Buy to Let properties.
Ideally he would like the cash raised from the Buy to Lets in his account prior to completing on the sale of his residence to make things a little easier.
There were a number of tricky aspects to this.
- Finding Buy to Let mortgage lenders that were happy with a non-simultaneous completion scenario so David had the funds in his account.
- Finding lenders that were willing to lend more on the Buy to Lets given the amount of rent on each.
- Balancing whether it was better to remortgage one or two at higher loan to values (and therefore higher interest rates) or remortgage more but at better loan to values so the interest rates were better.
The answer for David was to remortgage 3 properties at 80% LTV instead of 6 properties at 75% LTV. Even though the interest rates on these 3 were higher, the fact he saved 3 lots of lenders fees meant it was cheaper overall. We also managed to find a lender that was willing to complete on the remortgages before the new purchase was ready so that David achieved his goal of having the funds in his account, ready for completion.
Making your equity work for you and expanding your portfolio isn’t easy! We’d be happy to talk to see if we can help fit the pieces together. Give us a call on 01174 520 330. Our initial conversations usually last around 15 minutes.
Alternatively, you can email email@example.com and let us know how we can help you.
We will discuss:
- How much you can borrow
- What that will cost
- What fees can you expect
- How Lloyd Wells Mortgages work
- What insurances you will need
- What documentation you will need to provide
- Next steps
Your home may be repossessed if you do not keep up repayments on your mortgage