One big mortgage or two small ones?

[Idc0001]

Just looking for some advice. We are looking to buy a small place in Cornwall as a second home for around 150k would we be better to take a new mortgage out or take equity out of my flat which is valued at 260k which I only have a 70k mortgage on.

[Megatron]

There will be better qualified people than me to comment but I would look at the fees involved with 2 mortgages and how much interest you would pay over the lifetime of the mortgage(s). Also if interest rates rise would it be financially better or worse with 2 rising mortgages. An unknown is whether a mortgage company would want to know why you were taking so much equity out and whether they would be ok with that. I don't know how buy to let or second home mortgages differ but I'd be keen to hear other's advice.

[Dave O'Sullivan]

Presumably, having the cash to hand (as in remortgage your flat) will mean you are in a better negotiating position as you'll be a cash buyer.

That said, if your borrowing the full amount, it'll give you a rubbish ltv on your main flat.

[Passenger]

I'd assumed Cornwall prices had risen above that sort've range. Good to hear different.

[Idc0001]

I'd assumed Cornwall prices had risen above that sort've range. Good to hear different.

We are only talking a 1 maybe 2 bedroom flat which is still possible. Which is fine for us.

[Idc0001]

Presumably, having the cash to hand (as in remortgage your flat) will mean you are in a better negotiating position as you'll be a cash buyer.

That said, if your borrowing the full amount, it'll give you a rubbish ltv on your main flat.

That’s true about being better position to negotiate but that wasn’t the thinking behind it.

What does Itv mean sorry I m not best with these things!

[Gerald Genta]

That’s true about being better position to negotiate but that wasn’t the thinking behind it.

What does Itv mean sorry I m not best with these things!

LTV = loan to value. The more equity you have in a property the better the interest rate you are usually able to get. For a lot of buy to let mortgages you need around 40% equity in property your purchasing.

[lewie]

also consider a £150k second mortgage will cost £5K in stamp duty- I'm in this position now (buying a second home)

[Dave+63]

I’m no expert but if your flat is worth £260k and you’ve a £70k mortgage then a £150k addition would leave you at 100% LTV. I don’t think any banks would allow this these days so you’re almost certainly going to need two mortgages.

You should be able to take some equity out of you’d current flat (ie increase the mortgage), to enable you to put a suitably sized deposit down on your second property in order to get the best interest rate possible.

As mentioned above, you’ll have the second property SDLT to pay but that’s not relevant as it’s nothing to do with the mortgage.

A decent financial advisor would certainly give you the best advice on the most cost effective route to take.

[Kingstepper]

I’m no expert but if your flat is worth £260k and you’ve a £70k mortgage then a £150k addition would leave you at 100% LTV. I don’t think any banks would allow this these days so you’re almost certainly going to need two mortgages.

I’m no expert either but those figures aren’t right.

[alfat33]

also consider a £150k second mortgage will cost £5K in stamp duty- I'm in this position now (buying a second home)

I don’t think that is right either. You pay stamp duty on the purchase (more for a second home), not the mortgage.

As previously stated, I’d find an adviser or a mortgage broker. We used John Charcol recently who did a pretty good job with a complicated mortgage situation and got us a good rate.

[lewie]

I don’t think that is right either. You pay stamp duty on the purchase (more for a second home), not the mortgage.

As previously stated, I’d find an adviser or a mortgage broker. We used John Charcol recently who did a pretty good job with a complicated mortgage situation and got us a good rate.

he mentioned buying a second property for £150K- stamp duty on £150k second property is £5K

[Dave+63]

I’m no expert either but those figures aren’t right.

No, you’re right. It would seem I was having one of those moments when the fingers were disconnected from the brain!

Ignore me, I’ll go away.

[jimmyt]

Can’t really help other than having a very good mortgage advisor I can recommend who’s based in Cornwall, let me know if you want the details

[eagletower]

Just my opinion.

Main residence £260k Value = £70k mortgage outstanding, £190K equity.

2nd residence value £150k

If you got a new mortgage on your current main residence taking out a mortgage for £220k , leaving £40k equity as a deposit. Releasing the £150k to buy the second home outright.

I am not a mortgage broker , but I've found mortgage rates for your main residence, are better than buy to let, 2nd home Mortgages.

The £40k you leave is gives you you a 85/15 LTV so the rates aren't bad, around the mid 1% when i last looked.

So 1 mortgage over 2 I would think.

[Devonian]

This is fairly straight forward and a good IFA/mortgage broker will be able to advise the best route fairly quickly.

It will be mainly down to LTV’s which decide whether you do it over one or two loans. However be aware a few things. For example a buy to let will be a higher rate and ‘technically’ you should be putting a tenant in, if you get my drift? A holiday let mortgage may be an option and there are a couple of lenders who have very good rates. One very important thing to consider is that if it’s all one your home it will have to be in capital and repayment (so age may be a factor), whereas on the other property it could be done interest only. That may or may not be an issue.

Speak to a professional and they’ll be able to source the most appropriate route.

[Idc0001]

Many thanks for all the reply’s and advice. I m looking at having one larger mortgage now for sure as feel its the best option

[Dave+63]

Another possible advantage of one mortgage is that, should you get into financial trouble such that your home is repossessed, you would still retain ownership of the property bought outright.

Obviously there’d have be a particular set of circumstances occur in order for you to be in such a position but at least you’d have a place to live if it did.