Should I get a buy-to-let mortgage on my flat in order to buy my next home? DAVID HOLLINGWORTH replies

I currently own a small one-bedroom apartment worth £92,000 in Manchester.

I moved in and rented it for £650 a month, less a £75 maintenance fee and £55 a month I pay to the letting agency.

I’m renting a one-bedroom flat for £800 a month. I earn £25,000 a year.

I was thinking of taking £50,000 out of the flat I have as a deposit on a £100,000 house I would buy.

This would leave me with a mortgage of, say, £50,000. Plus the £50,000 borrowed on a buy-to-let mortgage that I would take out for my flat.

The mortgage rates they have offered me are very high. I will be charged 9.8 per cent for the buy-to-let remortgage of my £50,000 flat.

I will then get 7.9 per cent of the residential mortgage on the £100,000 house I want to buy.

Would I wait until 2026, when I could sell my apartment and buy the house outright with the extra money saved over the next few years?

I feel like these high interest rates are cheating me.

And it would be wiser to wait where you can buy the house for cash or at least most of it for cash.

Additionally, if those interest rates were to rise further in the future, you may have difficulty paying both mortgages.

What do you suggest? Am I thinking correctly? I am also concerned about the additional 3 per cent stamp duty charge when purchasing a second property. J.M.

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David Hollingworth replies: It’s good to take your time making a decision, rather than rushing into something that could leave you feeling pressured.

It’s always worth thinking about the possible consequences before going into debt, especially when you’re lucky enough to not currently have a mortgage.

The decision to move out of the existing property and rent it out could have arisen from the need to move areas for work, or because the property was no longer suitable for your needs.

Therefore, we will assume that you will not return to the rental property to reduce costs.

Could you sell?

Perhaps the most obvious route is to sell the existing property before or at the same time as purchasing a new primary residence.

That would avoid taking on substantially more debt than you would otherwise need to complete the purchase of the new home.

The sale of the rental property will free up capital that will allow you to invest it in the subsequent purchase.

If there is a shortfall between the amount you can put down and the purchase price, a mortgage could make up the difference.

> How to remortgage your house and find the best offer

That would still total a much smaller loan amount than using a buy-to-let mortgage plus a mortgage on the new home.

Your hesitation to sell currently may be due to existing leasing commitments or you may be concerned that you will struggle to sell the property in a calmer market, but I think this approach is worth considering.

It would also help you avoid the 3 per cent stamp duty surcharge on additional properties.

Buy to rent option

As you have discovered, it might be possible to borrow against the rented property to release equity now with a view to selling it in the future.

Buy-to-let lenders will usually base the level of borrowing available on rental income which covers the interest on the mortgage by a certain margin, usually between 125 and 145 per cent.

That will be calculated at a stressed rate to ensure the property gets a clean bill of health even if rates were to rise.

At first glance, your current rental income should be adequate to meet the lender’s criteria and cover the level of borrowing you have proposed.

> Best buy-to-let mortgages for landlords

One thing that will be important is to take into account the associated costs. Some buy-to-let mortgages can carry high fees, but at this level of borrowing they could mean a large increase in the total cost.

However, lenders offer a variety of options and many offer deals with no origination fees and other incentives to help.

You should also think carefully about how long you reserve for if you think you may want to sell the property later.

understand the recommendation

Their current research appears to have resulted in higher rates than could be found at some of the major buy-to-let lenders. Fixed buy-to-let rates with no opening fee can be found at just over 5 per cent.

However, the higher rates recommended to you may be for a particular reason and may be tailored to your individual circumstances.

This could, for example, reflect whether there is a problem in the credit file or it could be because the property is non-standard and limits the choice.

So there may be a good reason why the recommended fees are higher, but if you’re not sure it makes sense, get more clarity from your advisor to understand that lower fees may not be an option.

It is also important to understand the range of fees that can be paid, as these will only increase the cost, whether it is a product fee or a broker charge.

If you are unsure, you can try an alternative advisor to see if they have a different suggestion.

Some advisors, including ourselves, do not charge broker fees.

Be sure to find an advisor who can consider lenders from across the market.

In short, think about the right time to sell and whether you could avoid the need to take out two mortgages.

This is especially true if you ultimately see this as a short-term solution and intend to sell in the long term.

If you proceed with the buy-to-let option, make sure you understand the rates on offer and any potential impact on your long-term plans.

> True cost mortgage calculator: check what a new fixed rate would cost