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Using equity for a buy-to-let

THE QUESTION

I have property with a personal mortgage of £189K and I’ve just finished building an extension.  The new valuation for the property is £685K.

I want to get £150K out of the equity for a new buy-to-let project, but my broker says my affordability won’t get this much.  Is there a way around this without selling this house?

Do I need to change my current mortgage into a business mortgage to draw £150K out the equity?

THE ANSWER

The issue with a main residence mortgage is that what the property is worth is not the issue that determines how much you can borrow.  The key driver is how much you earn and how you spend it.

If your broker a) is decent and competent and b) has checked all lenders options, then the reality is your earnings are just too small to achieve your objective.

Getting a better paid job is the obvious way around it.  Or perhaps finding an additional stream of income that you can earn in your out-of-work hours.

‘Personal mortgage’ and ‘business mortgage’ are inaccurate terms that may be confusing you. What you have is a main residence mortgage (because where you live is your main residence). If you rented the property out, then it would be a Buy-to-Let mortgage or some variation of that; not a business mortgage.

You could choose to buy a new main residence to live in and transfer (port is the correct term) your current mortgage over to it BUT, you still can’t get a bigger mortgage than your income/expenditure warrants. So, it means buying the same type of house as yours was originally, before you extended it.

That would mean that you could get a Let To Buy (variation of BTL) mortgage but that still may not get all of that £150,000 out. Why? Because the rent you can get limits how much you can borrow, much like your earnings do - it’s just that the calculation is different.

To get a BTL/LTB mortgage of £339,000 (189 +150) the rental income would need to be a minimum of £1942 per month. Check out rental prices for your type of house - can you rent it out for this? If not, then you won’t get the extra £150k you want even if you did all of the above, because the rent has to comfortably exceed the monthly mortgage payment.

You can learn more here:

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