Funding Your Future: Using The Equity In Your Home, To Purchase Buy To Lets.

Your home may be repossessed if you do not keep up repayments on your mortgage.

The Financial Conduct Authority does not regulate most Buy to Let Mortgages.

All information was accurate at the time of publication.

26th August 2024

Let's explore two common scenarios:

Upgrading and Investing: Are you ready for a lifestyle upgrade? Releasing equity from your home can help you purchase a new property while also building a rental income stream.

Moving in Together: If you're planning to move in with your partner, renting out your current home can be a great way to generate income. Plus, you can use the equity to purchase an additional investment property.

If you're planning to continue living in your home but want to release equity, the process can be relatively straightforward. For example, one of my clients had recently taken out a new 5-year fixed-rate mortgage and then once that had completed, they came back to me to look at the

I recommend starting this conversation at least 6 months before your fixed rate expires. This gives us plenty of time to plan and gather the necessary information.

Your lender will likely conduct affordability checks and may also need to re-value your property if you've made significant renovations since moving in.

Once you've selected an investment property, we can provide your lender with the details. They'll then assess your application and issue a mortgage offer, allowing you to proceed with the purchase.

There are lots of hurdles you may experience when purchasing your first Buy to Let. You’ll want to consider how easy will the proeprty be to let? Are you going to manage the letting yourself? When I come to sell it will it be easy to sell? Are there any developments in the local area that might have an influence on the property? What is the properties yield?

There are other issues that you may face such as if you are buying a flat, has the lender I want to use already lending on too many flats in that block? This happened to one of my clients where the flat ticked all the boxes, the lender had a good rate and my client had an agreement in principle. Once we pressed submit on the application, the lender in question came back within 48 hours to say they have already got too many flats in the block and don’t want to take on any more. The frustrating thing in this instance is that we did a pre valuation enquiry and the lender came back and said “I’ve had a look at our records and I can see that we’ve recently accepted flats in this block for lending therefore I would suggest that this property is ok in principle subject to valuation and valuer’s comments with no guarantees or refunds.”

Luckily, the client hadn’t lost any money, just a week or so in regards to the application.

When I went back to the drawing board, lenders weren’t happy that the property in Central Bristol would be surrounded by commercial units such as bars, restaurants and clubs.

The flat itself is a 1 bed flat and less than 35 metres square. This was a threshold for some lenders who said as it wasn’t more than 35 metres square, they were unable to help.

Another lender came back and said they couldn’t help with a 7 storey block, and that 6 was their maximum.

There were two good lenders who were able to help and we were able to proceed despite the mentioned challenges.

This was quite a difficult scenario and is similar, but different to a Let to Buy application, where you let out your home, to purchase another home (I’ve also written a blog on Let to Buy Mortgages if you’d like to read that).But my client was looking to do this. They wanted to Let out their home, move in with their partner and raise money to purchase another property.

The good news is that there are still plenty of lenders who are able to help with this scenario including TSB and NatWest. An interesting bit of criteria from TSB though was that my client couldn’t buy the next property through a limited company, as they saw this as raising money for business purposes, which isn’t something they’re willing to consider. As I mentioned earlier on, my client did want to purchase the new property through their limited company, so we were unable to use TSB in this instance.

This is why it is so important to speak to me as early as possible, so we can have these conversations with the lenders to make sure the application process is as quick and easy as possible.

Whether it be a purchase, or a remortgage of your home to a Buy to Let, the lenders will want to send out a valuer to assess your property. They want to make sure the value we have given at application is realistic. If they feel the value is different, then you may not be able to borrow as much or we may need to pick a different product.

They will also confirm how much the property can be let out for. With Buy to Lets, the amount that can be borrowed is dependent on how much rent can be achieved. This is important when you’re changing your residential property to a Buy to Let as it hasn’t been let out before. The valuers will look at how many bedrooms there are, how large the space is, and compare that to other properties in the area.

The valuers are also checking that the property is in a desirable location. If your property is above a shop, near a restaurant, by a pub, then you will have less interest as fewer people will want to live in your property. Some lenders will simply decline your application in these instances. This is why I will always check your property to make sure there are no issues in relation to location.