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Remortgage home from residential to BTL to fund purchase of new home


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Could someone please confirm that the following is perfectly acceptable and reasonably straightforward:

We'd like to remortgage our current home - which has a nice chunk of equity - to a 75% LTV BTL mortgage and buy another, cheaper property outright to be our new home. So, some of the equity would be used to purchase the new home and some would be needed for the BTL deposit. We would then of course install tenants in our original home.

It only makes sense to me if the two transactions happen either the same day, or certainly within a few days of one another, because the purchase of the new home relies on the proceeds from remortgaging our current home, and presumably we couldn't stay long, if at all, in our current home as owner-occupiers if it were financed using a BTL mortgage. I presume we would then pay enhanced stamp duty land tax on the new home.

Thanks for any advice/comments.

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Hi Roger

What you are proposing to do is straightforward and very common. You get more lenders if both happen at once as well. You just need to make sure that your rent will cover a BTL mortgage, as not just based on LTV and that your income covers the new residential mortgage.

Correct on stamp duty although talk to an accountant as there may be other ways to structure it.

Talk to an FCA regulated broker who can give you help. I'm happy to chat if needed.

Regards Simon

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Thanks for the reply, Simon. I shouldn't need a new residential mortgage as the plan would be to purchase the new home using the proceeds of remortgaging the existing one. Thanks for the offer of a chat, too.

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This is what is commonly referred to as a Let to Buy scenario. You should find plenty of lenders happy to lend. Like Simon said, the projected rental income will be important in determining affordability. It would be a good idea to engage a local letting agent to obtain a market appraisal for anticipated rental income, prior to applying for your mortgage.

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Thanks, Richard. I find it useful to think of the transaction like this (assuming I've understood it):

  1. The lender buys our current home (in a sense) for its market value but we retain legal ownership of it
  2. We hand 25% of the proceeds back to the lender (the deposit) and agree to repay the remaining 75% on or before some agreed future date (this is the 75% LTV BTL interest only mortgage).
  3. We use most of that 75% to buy another property outright to be our new home
  4. We let our original home to a tenant

I'm assuming here that the amount the lender will lend is not dependent on our income, but only on the anticipated rental income. In practise we would be borrowing a lot more than we could possibly raise via a residential remortgage based on our income. This process is similar to equity release, except that we would be raising much more than we could expect were we to go down the usual equity release route, whereby a loan is secured by a lifetime mortgage with optional repayments.

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Yes, you are correct, to an extent. Affordability will predominantly be based on the rental income, however the lender may require that you have a minimum amount of employed income, typically £20,000-£30,000. This is to demonstrate that you could afford to manage any potential void periods in rental income.

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  • 6 months later...
On 10/21/2019 at 2:03 PM, Rafael said:

Hi @rogerh, wondering how you've got on with this?

I am thinking of doing something similar about converting my residential property into a BTL. Would be good to hear from you on how you managed this.

Thanks,
Rafael 

Hi Rafael,

I got a quote from a broker for converting our home to a BTL. The best he could offer was 2.99% fixed for 5 years but only a miserly 64% maximum LTV. At that rate the figures didn't make it worthwhile, taking into account likely rental income and the funds we would free up for buying another property to be our new home. So I've pretty much abandoned the whole idea.

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