How much equity can we release?

By THIS IS MONEY
Updated:

 

Can you clarify the following: We have a three-bedroomed terraced house rented out at £395 a month in Cheshire. The house is valued at £46,950 and has a £18,000 repayment mortgage on it. How much of the equity in the property can we release? Generally you say the lender will give you up to 75% of the property value so am I right in saying we could re-mortgage up to £35,212 and use this money as a deposit on a second home that we could live in ourselves and still be able to add standard income multiples to this sum? We live in the Middle East but may return to the UK permanently this summer. My husband will have to find a new job, so how many months' wages would he need in order to secure a mortgage if he is in a contract or a permanent job? SB Doha, Qatar.

Michael Aldridge of mortgage brokers London & Country says: In answer to the first part of your question, I agree that capital raising up to 75% of the property value appears to still result in you having a self-financing buy-to-let property ie, your rental income covers your mortgage interest by a fixed margin.

Lenders use different criteria to decide whether a property is self-financing, but assuming for illustration purposes your mortgage of £35,212 is charged at 150% on a rate of nine% then you require a rental income of £396 a month. Assuming that your existing by-to-let property is self-financing then generally it would be acceptable to use this raised capital to put down as a deposit on a second property where standard income multiples apply. However, the majority of lenders will only consider this when you come back to the UK and get back into a permanent job and finish any probationary period.

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