Using property as security to get finance on another property..

#1
I`m hoping the Arrse financial wizards can point me in the right direction on this ,

I `m thinking of buying a property and letting it to a relative so they have a secure home and in a two or three years when they have good enough employment they will buy it off me, my only concern is I may want to move before then and will need more cash than I`ll have available at that time , how easy will it be to use the property I`m renting out as security to get finance ? how do you go about it ? and who do you go to for the best deal ? pitfall`s ?

TIA
 
#2
Firstly, depends on how you're buying the first property and it's value. If you're taking lending to buy the first (even if you are supporting it with a rental income) then obviously the first property will act as security to the lender for that initial loan. If you were to move whilst your tenant is still in and took more lending in order to do so, if the first property was of significant value to cover both loan amounts you could, theoretically, secure both charges upon the single property. Unlikely, but potentially possible with the same lender.

I trust you'd also have a hard time getting a second lender to secure anything on a property with a charge already extant, due mostly to the fact they come second upon redemption.

If the lending on the second property comes to more than the value of the first, or combined it exceeds it then it's highly unlikely they'll lend on it.

As ever, though, the proper people to ask about this are the people you intend to borrow from. They'll pretty swiftly give a guaranteed yay/nay.
 
#3
To try and clarify - Round Numbers .

The buy to let is say £175k - buying for cash/no mortgage

Current residence is say worth £250k no mortgage , if I move before the tenant can buy off me then I may want to borrow £100-150k.
 
#4
That looks like a good plan, the rental property is yours in total and as such is a clear asset.
 
#6
You are likely to be able to obtain a mortgage on a property with a sitting tenant.
It is vital you enter into a formal legal agreement eg an Assured Shorthold tenancy with the tenant, even if they are family. You may also find a future lender won't like having a member of your family in the place.
I'm not a mortgage bloke but a very good friend of mine is.
 

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