The Question
My mum died three years ago leaving me her house in her will. I have just had the property valued at £199,000.
I haven’t got a mortgage of my own at the minute but I am looking to take money out of my mum’s property to put down as a deposit on another. In the meantime, I want to keep my mum’s house as a buy-to-let.
Can this be done and would you advise this as the best way for me to start on the property ladder?
David’s Answer
Yes, it can be done, but first it’s important to note that you’re already on the property ladder, given that you own a home with no mortgage. This puts you in a strong financial position.
If you’re interested in building a property portfolio, what you’re describing is known as a ‘let-to-buy’ arrangement. This involves letting out your current property, raising a buy-to-let mortgage against it, and then using the released equity as a deposit for purchasing another property.
However, there are a few key considerations to keep in mind:
- You won’t be able to release all the equity from the property. Lenders will allow you to release a certain percentage of the equity based on the rental value of the property, which you can then use as a deposit for your next purchase.
- You will need to account for additional stamp duty. This is because your next property purchase will be considered a subsequent home.
- You will also be subject to the standard mortgage assessment process. This takes into account your income, the deposit and other factors like stamp duty.
While you won’t be able to extract all the equity, you should be able to release enough to make a substantial down payment on your new residential mortgage. Simultaneously, you would take out a buy-to-let mortgage on your existing property. This is the essence of a let-to-buy strategy.
The key to making this work is seeking advice. It’s essential to assess how much you can borrow on a buy-to-let basis for your current property and how much you can borrow for the onward purchase.
Sitting down with a mortgage adviser is crucial—they can help you plan everything out, set realistic expectations and budgets, and guide you through sourcing your next property.
Meet our expert…
David Jackson established Prestige Private Finance in 2014 after nearly two decades in the mortgage industry. With experience in London’s high-net-worth areas, David and his team offer empathetic and expert advice for your financial journey.
If you have a question for David please email kate.saines@emap.com or leave a message in the comments below.
