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  • Mortgages & Finance

    Sell vs Remortgage

    Hi guys!

    Im going to simplify the figures on this one but would love anyones opinion on path forward.

    We have recently purchased a new home, after completing the desired renovations we are now ready to consider our next step forward, essentially we want to know if we should sell or remortgage?

    We purchased the house for £355k with a £50k deposit, we spent £100k on renovations and have had the house valued at £520k. Our initial thought was to sell up and take the profit and split over two properties, renovate both and then let one out and live in the other. Now we are wondering if we would be better of remortgaging to buy the second house.

    Currently our mortgage is £1k per month but our daughter has expressed interest in moving back home and paying £800pcm to live with us. Have to confess am not up to speed on how much equity remortgaging would release or what this would do to our repayments and of course will seek advice from our broker but was interested to hear any opinions from the tribe.

    Thanks in advance!

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    I would never sell this property - there are significant costs and risks in doing so (especially in the current market conditions where properties are taking up to 7 months to sell and there are big discounts being achieved).

    Selling a property is akin to slaughtering a cow, when you could keep that cow, breed from it (release equity), and continue to milk it. (cash flow).

    I would find the rental income that this property could achieve and that will give you a rough indication of how much you could borrow against it if you took out a BTL mortgage on it.

    See - Ready-made deal stacking calculations

    I would then turn it into a BTL and use the equity release to take the next step and buy another residence that you can add value to. Smile

    However, if you wish to continue to live at the property, then what you can borrow will be based on your income, so you should ask a reputable broker how much you can raise against it.

    That would help clarify your thoughts.

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    Hi Vanessa,

    Thank you as always! Every question I have asked on here you have been on immediately! 

    We have taken your advice at looks like we will be able to switch the mortgage to a BTL, draw down on the house and use the money to take another BTL and another for our own residence. 

    Thank you as always (loved the cow metaphor)
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    Hi Mike,

    I am so happy that you explored my suggestion and that it made sense to you. Smile

    I hope that, in 10 years time, you will look back and be even happier that you kept this asset!

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    suggest you explore the option of refinancing first to see what your options are - once the lender values the property then you will know for sure how much you can extract from in - in this market my experience suggests that lenders are undervaluing properties and generally being difficult. Good Luck.

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    Mike,

    I'm assuming this is your residential, because you refer to it as a home.  You haven't mentioned the potential price of a second property either.  If you have recently purchased the residential property, chances are that you will have an Early Repayment Charge on that to be factored in too.

    You might wish to take a further advance with your current lender, thereby avoiding the need to remortgage or sell.  Most lenders are OK with you raising money for this purpose, though you may have to run the resi further advance alongside the BTL purchase, so that the lender can be sure that you are using the money for that purpose.  The proceeds of the Further Advance can be used to purchase a property in full, or could be used as a deposit for a BTL.

    We're not tax advisers, but I guess that you'd have a CGT bill to pay with your original plan.

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    Vanessa, is spot on. Don't sell and keep for the long haul!

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