Buying a new home and turning old property to buy-to-let?

A reader from Preston wants to buy a new property and let out his existing home as a buy-to-let investments. But he is unsure about how to go forward.

Tony Davis, myfinances.co.uk mortgage expert from Mortgage Meadow, takes him through the problem.

Gordon asks:

We currently have a house (value £300,000) and have a £110,000 mortgage on it with only nine years left to pay.

We want to buy another house for sale at £400,000. And keep our original house and let it out.

So I think I need to borrow the deposit out of the old house and then get a new mortgage for the remainder to buy the new one.

What is the best way of doing this?

Tony replies:

This transaction is referred to as 'Let to Buy'.

You will end up with two mortgages (more than likely from two different firms).

The first will be the remortgage of your current home on to a buy-to-let product.

The anticipated rental will drive how much you can raise against this property and it is usually subject to a maximum of 85 per cent of its open market value.

You can then use the money released from the buy-to-let remortgage as your deposit and to cover your costs on the purchase.

There are many lenders that will grant your new residential mortgage knowing that you will have a buy-to-let in the background, subject to your status.

The term remaining on your existing mortgage is short (relatively speaking) and it raises the question of how you will pay off both mortgages; this is something that you should plan now.

I would recommend that before you let your property you understand the ups and downs of being a landlord and seek the advice of a professional letting agent – ARLA (Association of Residential Letting Agents) has a list of members by area.

Also, you should seek the advice of an accountant, who can explain the tax breaks and liabilities of what will become an investment (your current property) and finally, as with all mortgages, you should seek the advice of a mortgage broker who will go into the detail and help you assess you next steps.

If you have a question for Tony, go to the myfinances.co.uk Ask the Mortgage Expert section.

Or for more information or mortgage advice go to Mortgage Meadow.

Mortgage Meadow is an independent mortgage broker and is authorised and regulated by the Financial Services Authority.