Scaling Your Home to the Next Level

  • Your home is not just a home
  • It can help you move up the property food chain

Have you ever wondered how you can easily and safely scale up from being a person owning one property (your home) to a person owning a second property (a buy-to-let unit)?

Have you been put off scaling up because of being unsure where to start?

Have you tried to scale up and failed royally?

The good news is that there is a super quick and simple way to scale up.

It’s called leveraging your home. In brief, it involves borrowing against the equity in your home to raise a deposit, which you can then use to purchase a buy-to-let investment property.

The strategy is particularly appealing if the rent from the tenant pays the additional mortgage amount on your home as well as the mortgage on the buy-to-let property, with a bit to spare.

These are the 3 key steps you must take to give yourself the best chance of securing the deposit you will need:

1. Check your credit score
2. Consult a mortgage broker
3. Do the sums.

1. Check your credit score

Your ability to borrow or get the best mortgage deals will depend in part on your credit score.

Check your score as soon as you make the decision to borrow against your home.

If your score is not good, take steps to improve it – and that may involve waiting a few months until your score increases.

Boost your credit score (12 important steps to keep your credit record healthy)
10 steps to clean up your credit act (and improve your chances of a mortgage)

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2. Consult a mortgage broker

Speak to an independent whole-of-market mortgage broker with buy-to-let expertise to find out how much you are likely to be able to borrow.

That will enable you to work out the price range of your buy-to-let purchase, taking into account all costs of purchase including stamp duty, mortgage fees, broker charges and legal fees.

Say for instance, you can release equity of £50,000 and can get a mortgage at 75% loan to value (LTV).

That will mean you can buy something in the £200,000 range, with exact calculations being dependent on whether you have any savings to contribute to the purchase costs or will be relying entirely on the amount borrowed.

The amount of equity you will be able to release will depend on the lending policies of your chosen lender.

For example, say your home is worth £300,000, your current borrowing is £200,000 and your lender is only prepared to lend on the basis of 80% LTV. That would mean you would be able to borrow a maximum of £240,000, raising an extra £40,000. But that would be no good if, for instance, you were looking to raise £50,000.

An important factor to consider with your broker is whether you will be able to borrow from your existing lender or will need to find a new lender, which may or may not prove to be more expensive.

Raise funds by remortgaging (looks at the ins and outs of remortgaging)

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3. Do your sums

Once you have spoken to a mortgage broker, you should do your sums with the greatest of care.

Not only should you work out your purchase costs with precision accuracy – seeking advice and assistance if you have any doubts – you should also be sure that you can comfortably afford the new mortgage payments.

Take account of the fact that the additional borrowing against your home will put up your domestic mortgage payments. The monthly rental income from the buy-to-let property must be enough to comfortably cover the mortgage payment on the buy-to-let property plus the increased payment on your home mortgage.

Do a personal and household budget and double check all your figures.

It is good practice to hold back some of the amount borrowed as a reserve to deal with possible financial issues such as:

  • Your unemployment for a period of time
  • Rises in mortgage interest rates
  • Void periods when the buy-to-let property is unlet
  • Unexpected major expenditure such as a new boiler.

It is considered good practice for the reserves to be enough to pay both mortgages for at least 6 months.

Conclusion

Using your home to become a buy-to-let investor is smart and usually straightforward.

The important thing is not to do it too soon. You should avoid maxing out on borrowing – for instance by reducing the equity in your home to the lowest level a lender will allow. That is perhaps too risky an approach.

You should aim to retain at least 30% equity in your home after your buy-to-let purchase.

Enjoyed this blog? Please share it with friends by clicking on the LinkedIn, Twitter, Facebook or Instagram icon on this page. 

Are you looking to use your home to purchase a buy-to-let property?  Are you comfortable about the process or do you have concerns? Please leave your observations or comments below.

You may also find the following blogs useful:

5 must know mortgage facts (key features property owners must know)
Interest only or repayment? (a basic comparison of the two main mortgage types)

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Dalton Barrett
Rebel Property Coach

Please follow me on Twitter @Dalton1London
You can find me on FacebookInstagram and on YouTube
Please link up with me at LinkedIn

My website is: www.rebelpropertycoach.com


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