Let to buy - how does it work??

[chonok]

Weve had our house up for sale for a while, but it isn't selling.

It is quite big and I could potentially convert it into 4 one bedroom flats and rent them out.

What I am struggling to get my head around are the finances.

House has been valued at £250k, we have a mortgage of £125k

Most buy-to-let mortgages allow for a max of 75% LTV i beleive, so £187.5k mortgage (potentially)

So far so good, but would i then get the £62.5k equity back in cash?? What would happen to the original £125k mortgage?

Probably me being thick, but struggling to get my head around it.

[Dimebars]

You could remortgage your existing property on a Buy To Let basis (assuming you meet criteria etc)

You remortgage for £187k, pay off the £125k and pocket the difference. You then have a £187k mortgage to pay instead of a £125k mortgage. Obviously the hope is any rental income covers the repayments on the £187k

You can then use the £62k equity you've released as deposit on your new pad.

EDIT: Just realised the bit about sub-dividing. You'd obviously have costs associated with this to take in to account as well

[Sarnie]

chonok said:

would i then get the £62.5k equity back in cash?? What would happen to the original £125k mortgage?

Yes, you would receive the funds as cash into your account............the new £187.5k mortgage would take over from the original mortgage which would be repaid.

We do a lot of LTB simultaneous transactions with funds being raised on the LTB to provide the funds for the deposit of an onward purchase....

[Dimebars]

Sarnie said:

Yes, you would receive the funds as cash into your account............the new £187.5k mortgage would take over from the original mortgage which would be repaid.

We do a lot of LTB simultaneous transactions with funds being raised on the LTB to provide the funds for the deposit of an onward purchase....

How would the mortgage co view the sub-division of their asset, out of curiosity? They are mortgaging a 4-bed house, not 4 individual 1-bed houses on paper at least

[Sarnie]

Dimebars said:

How would the mortgage co view the sub-division of their asset, out of curiosity? They are mortgaging a 4-bed house, not 4 individual 1-bed houses on paper at least

Depends on when the division was carried out, before or after application.............

[chonok]

Sarnie said:

Depends on when the division was carried out, before or after application.............

Thanks for all of the help everyone, very useful, although i did think about the above after i posted it.

Could they have any comeback if i did the work after getting the mortgage?

It could be quite tricky as the rental value of the house alone would probably not cover the outgoings for the mortage, so i assume i would be very unlikely to get the BTL mortgage on it as a single property anyway...