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Using equity from own home to fund a buy to let


matty c

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Hi all.

Looking for some advice. I'm planning to purchase a buy to let flat off plan in a company name. I have enough cash to pay the 10% deposit.

I don't have a mortgage on the family home and so was thinking about releasing equity in that to fund the rest of the purchase.

Are there any rules against doing this or percentages I have to stick to? I'm wondering because I'd be essentially taking out a mortgage on my home to fund the purchase of a Buy To Let and I didn't know if that was allowed. 

Thanks in advance

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what I would do ....

first suggestion would be go to your Bank or previous mortgage lender to ask 'based on the present value of your property 'what are your options in taking out equity, how much, rate, terms & any fees associated with doing it'

then once you know that, and know the amount of available cash, you could use it for whatever, either to buy something, modernize your current property, spend it on a world trip,  invest in property related investments or that BTL property which is what you're looking at doing.

using some basic numbers along with a few ideas ... 

- lets suppose your lender made available 50k or possibly an amount that includes savings that would allow you to purchase an income property cash... what precisely will you do with it?

- then ask your lender, consider also going to several mortgage brokers (doing a comparison) see what is available in BTL mortgages, the interest  rate, term etc. lowest overall cost of the mortgage payments including any fees.

- with those few things done it will be time (if not already done so) to research the property market that you're looking at (price & rental rates) to see what is available, to make sure the potential BTL will net-net positive cash flow.

good luck to you.

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4 hours ago, matty c said:

Hi all.

Looking for some advice. I'm planning to purchase a buy to let flat off plan in a company name. I have enough cash to pay the 10% deposit.

I don't have a mortgage on the family home and so was thinking about releasing equity in that to fund the rest of the purchase.

Are there any rules against doing this or percentages I have to stick to? I'm wondering because I'd be essentially taking out a mortgage on my home to fund the purchase of a Buy To Let and I didn't know if that was allowed. 

Thanks in advance

Hi Matty (great name by the way) 

It's absolutely fine to do as a general rule. You might find the odd lender who won't look to do it based on their individual criteria, but as a rule its fine to do, and in my opinion a great way to raise the finance as long as it fits the figures and your strategies. 

I've raised deposits for 3 properties doing the same but whilst under mortgage, so restricted to one lender. In your position you should have no issues whatsoever. 

Good luck with it, let us know if you have any other questions. 

Cheers

Matt 

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1 hour ago, matt hall said:

Hi Matty (great name by the way) 

It's absolutely fine to do as a general rule. You might find the odd lender who won't look to do it based on their individual criteria, but as a rule its fine to do, and in my opinion a great way to raise the finance as long as it fits the figures and your strategies. 

I've raised deposits for 3 properties doing the same but whilst under mortgage, so restricted to one lender. In your position you should have no issues whatsoever. 

Good luck with it, let us know if you have any other questions. 

Cheers

Matt 

Hi fellow Matt

Thanks for the response. My property is worth about £330k and I’d be looking to borrow roughly £198k for 2 Buy to Lets actually. 
I hear that you have raised the equity for deposits but I was questioning whether it was a different story if it was to actually pay the balance for the 2 Buy To Lets. Great news if I’m able to do it.

Thanks,

Matt

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Yeah you should be absolutely fine to do so with most lenders so go for it. 

Have you given any thought to using that 198k as multiple deposits rather than owning 2 outright? E.G assuming 100k purchase price you could easily stretch that out to buy 6 including all fees and stamp duty and still have money left over. Obviously all depends on your strategy but might be something to consider if you haven't already looked into it? 

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On 11/15/2019 at 3:09 PM, matty c said:

Are there any rules against doing this or percentages I have to stick to? I'm wondering because I'd be essentially taking out a mortgage on my home to fund the purchase of a Buy To Let and I didn't know if that was allowed. 

You can use a residential mortgage to release equity, to use to invest in Buy-to-Let Property.

There is no real percentage limit (well except say 95% LTV) but remembering the lower the LTV the lower the payments.

Residential Mortgages are typically cheaper too, than Buy-to-Let so raising funds for 100% of the BTL purchase price. Therefore not requiring a BTL Mortgage could work out cheaper in the long run.

Though this is obviously a choice - investors who like "leveraging" would use the same released equity along with BTL mortgages to buy multiple buy-to-let properties.

You need to work with a good mortgage broker to find the best residential mortgage for your circumstances. Some lenders do not permit you to release equity to invest in Buy-to-Let. Others will not release the equity until you have found the BTL property to invest in (and had offer accepted). Whilst others are ok with releasing equity and you leaving it in the bank for some time, until you find the right investment.

(Though you obviously want to minimise the time its sat in the bank, as you would be paying interest on the mortgage payments).

At a low enough Loan to Value, its possible to get a residential mortgage on Interest Only if that is what you prefer. Though most lenders are eager and prefer a repayment basis.

:wub: Get Mortgage Advice from my Team at Bespoke Finance on 08009202001 or email hello@bespokefinance.info 
:ph34r: 
Please don't take my messages on Property Hub as Personal Financial Advice, just a rambling guy passing time on a Coffee Break.
 

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Thanks for all of the advice guys. I have spoken with my accountant. What I hadn't appreciated was that I couldn't offset the loan interest to tax if I release equity in my home as the money will have been lent to me, not the company.

This would defeat the whole object of setting up the company. So it would seem that the advantage of the lower interest rate on the family home loan would not outweigh the disadvantage of then having to pay the full interest on it versus the slightly more expensive mortgage in the company name and being to offset the interest to the Corporation tax bill.

Do you guys agree with that?

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2 hours ago, matty c said:

Thanks for all of the advice guys. I have spoken with my accountant. What I hadn't appreciated was that I couldn't offset the loan interest to tax if I release equity in my home as the money will have been lent to me, not the company.

Correct ^^ but you can loan to your company the money and charge interest. You would personally be taxed on the income charges and your limited company could claim the interest as an expense agaisnt corporation tax.

 

2 hours ago, matty c said:

 

This would defeat the whole object of setting up the company. So it would seem that the advantage of the lower interest rate on the family home loan would not outweigh the disadvantage of then having to pay the full interest on it versus the slightly more expensive mortgage in the company name and being to offset the interest to the Corporation tax bill.

Do you guys agree with that?

Without looking at all of your figures I cannot say either way.

It depends why you are looking at setting up a SPV limited company anyway. What is your reasoning behind setting one up?

As I understand your situation...you have enough cash for 10% deposit for a SPV limited company purchase but no more in the bank?...how do you intend to purchase a property then?

What is wrong with realising equity in your home by refinancing etc and buying a BTL in just your name? Why go the SPV route?

Hope this helps

Conrad

 

Conrad Paton

+44 7957 959851

conradpaton@yahoo.co.uk

https://www.linkedin.com/in/conrad-paton-424446110

 

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Hi Conrad

Many thanks for your response.

I am just weighing up all my options at the moment. My initial thinking was a BTL mortgage, taken out in the Company name but then I started to wonder if releasing equity in the family home would be a more economically efficient way of doing it.

I do have more than the 10% deposit - easily enough to cover the remaining, say 15% I'd need to put in on each flat I'm buying then I'd ideally like to use the rest to invest in other properties.

The idea of setting up the Ltd company was to allow me to offset the mortgage interest to my Corporation tax bill and also to leave the profits in the company to use as deposits on future purchases. I am planning to build a portfolio of properties.

If I charged the Company Interest on the money loaned to it, I'd be looking at a 40% tax rate on that as income so that wouldn't be worth saving the 19% Corporation Tax only to then pay 40% on it as income. 

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Im no accountant but as I novice understanding is - the repayment of loaned monies is not income, only the interest charged is.
So you could witdhraw the capial without paying 40% tax rate as income.
It's also up to you what the repayment basis is or if you want to take advantage of withdrawing those funds out of the company or not.

( P.S. You mention 15% deposit for buy to let above. Whilst we can do 85% LTV Buy-to-Let Mortgages, the rates jump up compared to 80%. The lower the LTV the better but 85% is expencive. )

:wub: Get Mortgage Advice from my Team at Bespoke Finance on 08009202001 or email hello@bespokefinance.info 
:ph34r: 
Please don't take my messages on Property Hub as Personal Financial Advice, just a rambling guy passing time on a Coffee Break.
 

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