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  • Buy-to-Let

    Leveraging up in my existing situation?

    Hi,

    I was looking for some thoughts on my current situation.

    I was given a flat several years ago that is worth roughly £420K.

    It brings in £17 yearly in rent. I’m planning on trialling it as Airbnb /short term let too.

    I drew down an interest only mortgage on it for £55K to help fund the flat I currently live in. 3.29% fixed for two years which is rather high (organised through an independent broker).

    I'm considering drawing down again on the rental flat to fund a deposit on another buy to let flat.

    However, I'm in Edinburgh and the best yield I'm seeing is about 6.5% at most.

    I've been trying to Educate myself on property, books and courses (the courses have not worked out well!)

    I'd be interested in anybody's thoughts on what is possible given my current situation.

    1. Is 6.5% yield too low? I’m thinking for the level of risk, it seems low. Plus a few interest rate rises would floor me.

    2. Am I paying a far too high an interest rate?

    3. Is using an interest only mortgage to fund part of the flat I live in, a bad idea?

    4. Am I nuts to start really leveraging myself in the current climate.

    Thanks for any help.

    P.S I know I'm in an extremely privileged position, I don’t take it for granted. I'm just trying to take advantage of what I have in the best way possible. I've got a child on the way in a few months, my wife's income will pretty much disappear.  I’m just trying to figure out what I could do to help us. I’m in full time employment and pretty decently paid too.

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    Once again my thoughts remain the same. This is not the time to leverage on property. Your current position appears  manageable and under control.

    Airbnb and short term lets need more management time and with a new one on the way will you have this time .

    Don't think your wife will do it as a new born will take up her time and energy.

    Just abide your time, settle in with the new one when it comes and there will be plenty of  other opportunities over the coming months .

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    Hi Brian and welcome to the tribe.

    You have a very significant amount of equity in the flat you were given, and you can leverage that without increasing your borrowing.  You could use it to bridge against for instance, essentially making you a cash buyer.

    Up to 50% LTV is acceptable imho, so I don't think you are too highly leveraged in the current market conditions.

    You may be ill-advised to undertake Air BNB on a leasehold flat, as there are almost certainly terms in your lease that prohibit such activity, meaning that you would be breaching you lease.  Not good if the freeholder finds out.

    I really think that you should speak to a reputable mortgage broker like the team at Property Tribes Financial Services on 01206 654444 and ask them to review your existing mortgages and improve them and then assist you in devising a strategy to take advantage of the significant equity in your high value flat without taking out further equity.

    Don't rush into anything.  Take your time, learn, grow, and seek professional advice.  A safe way forwards will become clear to you.

    Hope that helps and good luck!

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    Thanks Vanessa for taking the time to write that.

    The mortgage advice is something I'll definitely do.

    On the bit were you say "you can leverage that with out increasing your borrowing. You could use it to bridge against for instance, essentially making you a cash buyer." How would this not increase my borrowing?

    My only knowledge of bridging finance comes from Rob Dix : https://www.propertygeek.net/article/bridging-finance-the-ultimate-guide/

    I think I might not be following something here? Do you mean, use bridging to buy a property and then flip it pretty quickly?

    Thanks again.

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    Apologies for not explaining what I meant properly.  I meant to use your flat to bridge against, essentially making you a cash buyer.

    Once you have purchased something, you can take out a BTL mortgage on it and redeem the bridge.  Therefore there is no additional permanent borrowing on your flat, just a short term bridging loan which is redeemed by BLT finance.

    If you follow our "Finance Innovation Insights" Week it is talking about a new product that allows you to buy for bridging finance and then convert to a BTL mortgage, redeeming the bridge.

    Have a read/watch of this:  Launch of "Finance Innovation Insights" Week

    Again, a good broker will review your current position and explain to you how to maximise your current assets to help you grow additional ones.

    I hope that better explains what I was referring to?

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    Hi,

    Thanks for explaining that. Very helpful.

    Thanks

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    4. Am I nuts to start really leveraging myself in the current climate.

    I think so.

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