Are you thinking of taking new mortgages? Unusual Risks advise one couple, who are planning to let their home and then buy a second one in this difficult mortgage market.
Jake and Joanna want to turn their current home into a buy to let mortgage and use the equity to buy a new home. Their house is worth £225,000, with an outstanding mortgage of £100,000 with their current lender. They need an extra bedroom for their first baby that is expected soon.
Jake said…
‘All our friends are saying that I’d be mad to sell this property, as it would make an ideal place for tenants. The local transport links are very handy and there is a ready-made letting market through the University. The property is too small for a family, but idea for a young couple or students’
Many people are now looking to ‘Let and Buy’, instead of the traditional method of ‘selling and buying’. If there is enough equity in the existing property, then it makes sense to withdraw capital and use this as a future deposit. The first property is then kept as an investment for the future.
This is becoming a common way to plan for the future, especially with the uncertainty in financial markets resulting in lower values of pension funds. Obviously there is an additional cost in keeping the first home and taking a second mortgage, but many homeowners feel it’s a price worth paying.
Joanna continued…
‘The plan is to use the income from the tenancy agreement to pay the mortgage on the first property, whilst using our own earned income towards the residential mortgage on my new home. Even though I plan to return to work part- time after the birth we will have enough income to do this’.
HERE’S SOME ADVICE FOR THOSE TAKING MORTGAGES
If you are letting and buying, you should aim to balance your mortgages, so that the debt on each Property comes to no more than 75% of each Property value. For example, if your two properties are worth £200,000, your mortgages should be for £150,000 each.
Make sure that the rental income on your Buy to Let Property is at least 125% of the Interest that you are committed to paying. This will ensure that you have enough money left over for repairs and periods not let. It’s important not to be paying for the first property out of your own income.
It would be sensible to make one of the mortgages Capital Repayment and the other Interest Only. In normal circumstances you should keep your residential home as a traditional repayment loan, and the investment property should be financed with an Interest only loan.
Jake and Joanna
Unusual Risks arranged two mortgages, with the first for £168,000-jal income of £225 per week to cover his letting mortgage of £731.00 per month.
If you require specific advice on these issues, or are looking for a quotation then you should contact Unusual Risks. They are one of the UK’s leading mortgage and insurance specialists for people in unusual circumstances. They can be found at www.unusualrisks.co.uk