Should I stay or should I go?

Posted on 30 September 2008

Hi Bea,

I currently own a flat in London with c£70k equity tied up and a variable rate mortgage, I am also (due to personal circs) renting in Berkshire.

Due to market conditions I am struggling to sell, therefore, considering another property purchase in Berks as the rental is dead money.

Please can you tell me what are the pitfalls of doing this? and also how do I go about releasing the equity from the London Property to fund my deposit and new mortgage/move etc? - or - should I just stay still and wait.

Thanks for your help

Adrian

 

Hi Adrian
 
Good question, the song "should I stay or should I go" by the clash springs to mind! 
 
Firstly, only you can make the choice about buying a second property, all property - whilst being home –is technically  an investment and investments carry risk.  However I can tell you that it is possible and that you can do it one of two ways, depending on your circumstances and future plans.
 
Firstly you could remortgage, release the equity in your London flat to purchase a second home in Berkshire.  This is all based on your income, so both mortgages would need to fit within your affordability.  The maximum loan size against the property value (LTV) would be around 75%, this would mean leaving 25% equity in both properties.
 
Secondly you could remortgage and release the equity from the flat on a buy to let mortgage.  Again you would need to leave 25% equity in, and the rental income would need to cover around 125% of the monthly mortgage payment - calculated on an interest only basis.  You can then use the equity to purchase your new home on a normal residential basis.  You will need to have at least a 10% deposit but the rates are not very attractive, they start to look and feel better with 15-25%. 
 
There are a lot of things to consider such as mortgage fees, legal fees, stamp duty,  so please do give one of our brokers a call as I know they would love to chat this over in detail with you and help you find the right solution.  You can reach them on 0845 413 1053.
 
I wish you all the very best!
 
Bea

 

Answers provided in response to Ask Bea are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not neccessarily represent the views, positions, strategies or opinions of Charcol Limited. All comments are made in good faith, and neither Charcol Limited nor Bea will accept liability for them.

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