Remortgage strategy

Discussion in 'Buy-to-Let Property Investment' started by sultanoflondon, Aug 21, 2018.

  1. sultanoflondon

    sultanoflondon New Member

    Hi all,

    I was wondering whether this strategy is a good idea to grow a property portfolio or in reality it won't work so well. Please do shed some light on this.

    You buy a property for £400k using an interest only BTL two year fixed rate mortgage, with 60% LTV & 40% deposit (deposit is £160k and loan of £240k). This allows you to obtain a low rate on the mortgage, due to the relatively low LTV. Two years later, the property is valued at £440k. You remortgage with another interest only BTL two year fixed rate mortgage, with 60% LTV & 40% deposit (deposit is £176k and loan of £264k). Due to the price rise, you have to now pay £16k into the deposit and the bank releases £24k to you to make up the 60% loan. This means your net bank balance increase is £8k.

    With this £8k, you can renovate the property, boost your savings from the rent earned towards another property, or whatever you wish.

    I understand one major assumption in this strategy: that property prices are continually rising. Are there any other flaws with this strategy?

    Thank you!
     
  2. FWL

    FWL Member

  3. Longterminvestor

    Longterminvestor Active Member

    You are not really giving yourself much financial headroom there in the event that property prices dont move and/or mortgage rates rise?
     
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