Buy to Let Remortgage
Expanding Your Property Portfolio
The more properties that you purchase, the greater the profits you will make in a rising market. However, most people are on a limited budget, so the problem is, how do you expand your property portfolio?
Re-mortgaging
The answer is re-mortgaging. It works quite simply. What have you done with the first property that you bought for £200,000?
• Renovated it completely?
• Redecorated it, changed the colour scheme, carpets and curtains so it looks more up-market?
• You bought off plan two years ago, the property has just been completed and prices have now risen?
• You bought in an up-and-coming area. After renting out the property for a couple of years the area that you bought in has improved and the property prices have increased as a result?
As you are a property investor, you will have carried out one of these options and the value of the property will have increased. As a result you can raise more money on the property and free up some more of your precious capital to invest in another property.
How does this work?
Remember how a buy to let mortgage works? You have to put down a 15% deposit on the value of the property and prove to the lender that the gross rental income will cover the interest charge by 130%. Let's look at our property now. Two years on, it has been valued by the surveyor at £250,000.
Property valued at £250,000 15% deposit £37,500 Loan from mortgage lender £212,500 Previously your loan was £170,000 Profit to re-invest with £42,500
Meeting the criteria
This is called gearing. You are re-investing paper profits on your property without having to sell it or pay tax on it. However, re mortgaging is not just a theoretical exercise, the mortgage lenders are encouraging of the practice and, providing you meet the criteria, they will lend you the enhanced amount. You will, however, still have to achieve the rental figure of 130% of the annual loan interest rate. Which in this case is:
£212,500 x 5% = £10,625 per annum
Or £885 per month x 130% = £1,151.
You have now made a paper profit of £42,500, which you can re invest in another property and you haven't had to pay a penny in tax. Do you know a better way of making money?
