Jo Grimwood: So Paul, quite a long question for you. We’re currently looking to move to a new four bedroom house early in 2019 which is worth 320,000. Our current house is valued at 200,000, and our mortgage is around 70,000. Now, this would give us around 130,000 deposit for the new place which is ideal; however, I’d thought about keeping our current home and renting it out, but have no idea about the pros and cons.
Jo Grimwood: I’m meeting up with a mortgage advisor next week, but thought I would ask here before, so at least I have some knowledge. Could I remortgage my current home for 200,000 and still use 130,000 equity as deposit on the new place. Obviously, I understand I would have two mortgages, and it would all depend on if the rental figures from my current home allowed me to pay that mortgage. Any advice?
Paul Mahoney: There’s obviously quite a few things to consider there. Yes, they could sell their home. In selling the home, they’d have to consider the cost of selling the home, so they’ll likely have agent fees and legal fees, et cetera to pay, so they may not be quite left with the 130,000. Just a quick point there.
Paul Mahoney: If they were to keep it, there’s probably more to… Well, there is more to consider than just whether they can get a mortgage for the property. They need to consider whether it actually makes sense as a buy-to-let. Whether there’s going to be demand for that property in the rental market. Whether where they live is the right place to have an investment because, of course, the criteria they’ve used for selecting that property is what they want and like which may not be what the rental market wants and likes, so that’s important to consider. Perhaps something their mortgage broker might be able to help with, but might not as well, so might need to seek the help of another professional in that area.
Paul Mahoney: To keep it as a buy-to-let and remortgage it, they asked, “Could they remortgage it as 200,000.” Well, “Yes,” if it’s worth 200,000, the value being 200,000, and the fairly standard buy-to-let loan-to-value ratio would be 75%, so they could quite likely get out their 130,000 assuming the rent stacks up from a serviceability perspective because there’s two ways that lenders look at what they’ll lend you. There’s loan-to-value, and there’s serviceability which is actual rent that the property will generate.
Jo Grimwood: Yes.
Paul Mahoney: So there’s quite a lot to consider there as to whether they should be selling, or whether they should be keeping it. Another thing to consider is some, if not all, lenders will consider them accidental landlords because they didn’t buy that property as a buy-to-let, it’s been a previous home that they’ve just kept.
Paul Mahoney: But, look, I’d say the most important point there is does that property make sense as an investment? Should they be keeping it as an investment or not because they could always sell it, release the equity, potentially buy a home, and maybe buy a different buy-to-let, so keeping that one may or may not be the right option for them, and what they’re looking to achieve.