Raising a deposit through equity in current house

sturdygirl21

Hi all,

I hope you can answer this for me - I think it may be a stupid question:)

4 years ago I was lucky enough to be helped onto the property ladder by my parents, who basically 'loaned' me £120K - I've been paying them back (with a little bit of interest to make me feel better about the arrangement!) every month since moving in.

I've since met someone, and we are hoping to buy something together, getting a joint mortgage. This will be his first home.
We have some savings between us, but the bulk of the money is in the house - I basically get the difference between what my folks loaned me, and what I've paid off since. If I'd have got a mortgage on my current house, I'd probably be in neqative equity and not in a position to sell, so they really have done me a big favour!

My question is - when getting a mortgage, is it possible to use the money I have in the house as a deposit, even though it won't be accessible until the sale has gone through? As this is my first mortgage, I'm unsure how it all works and what you need to pay upfront and what can wait until the sale is complete.

Any advice appreciated - thanks!!

poppysarah

Were you lucky to be helped by your parents if you're in negative equity?

If you have negative equity (money you owe your parents > value of house) then you won't have any "deposit"...

Unless you're going to not pay them back?
So you'll sell this house - keep the money and then keep paying your parents back that whilst paying a mortgage on the half a house you're buying with your bf?
You need to get legal advice on securing any money you put in (your parents money?) ... and the best way is to probably pay them all back and use whats left over and save a deposit.

I'm a bit confused though by your post but am about to go and fire the brain back up with caffeine shortly.

jockosjungle

Stupid question but it seems like you both own houses? Can't you sell one of the houses and use the money to either pay off the other or save it and live in the one house, then maybe moving forward you can look for something else

R

sturdygirl21

Ooh sorry - I've confused people here, and myself in the process!! I'll try and be clearer -
I'm the only one in the relationship that has a house to sell.
I'm not in negative equity - I meant to say that I'll get the difference between what I accept on the house, and what I owe my parents. As I've been paying them back for 4 years, I've paid off about £26K. My house will probably sell for £120K, so I keep the £26K difference. We'll need to use this towards the deposit for the house we buy together, but obviously won't be able to access it until we've got the money in the bank from the sale of my house.

I think I need some caffeine too..............!!

Fire_Fox

I don't understand either. Why would you not simply sell your house before buying another or at the same time? The money will only end up in your bank account if you sell your current house first, if you do the two simultaneously the money will go from your buyer's lender to your solicitor to your vendor's solicitor, and from your lender to your solicitor to your vendor's solicitor if the cash needs topping up.

You paid £120K for the house in cash four years ago and you think it is still worth £120K? Why aren't you accounting for the recession? Have you accounted for the costs of buying and selling - estate agents, removals, legal fees? How are you going to pay back your parents AND a mortgage? You do know that you will have to declare the debt to your parents when you apply for a mortgage?

LittleMissAspie

I wonder how this works too. You have to pay the solicitor 10% at exchange so how do people pay that if the 10% is part of their equity which they haven't released yet because they haven't completed yet???

sturdygirl21

Ha! Sorry guys - thanks for your comments - I think I was just trying to keep it simple and skim over certains things, not taking into account that you're not in the know about the whole situation!!
I bought the house for £117K in 2006 but was loaned £120K to help with decs and furniture. I've had the house valued at £130K - house prices have come a little here regardless of the recession - it's been on the market for a few months, and I've so far got an offer of £118K which I'm hoping to push up to £120K.
The idea is that I sell the house at the same time as buying a new one with my partner. We can't sell first as we have nowhere else to go in the interim and don't want to rent. I guess I was just wondering how it worked when I don't have the full deposit in my bank ready to hand over. In my head, I'm thinking that I need to have the money ready and waiting to hand over for our deposit....does it not work like that? It's something I started to panic about randomly when i was bored in work - maybe I'm worrying for nothing......
As for legal fees, etc - we're planning on our savings covering that.
As for paying parents AND mortgage - we won't be doing that as they will have the remainder of the money I owe them from the money i take from this house sale.
And as for declaring the debt when we apply for a mortgage - my god i didn't even think of that! Although, the broker knows the score and didn't seem phased by it.
Thanks again guys!

dubsey

Your broker really should have gone through all of this with you. Your deposit will filter up the chain from your buyer, so effectively, yes you don't need to physically take the money out first. Your broker should have made sure there was enough equity in your current property to make up the deposit needed for the new one.

How much are you buying on for?

DVardysShadow

I don't see that the new lender needs to know about the loan from parents, provided it is paid off fully on sale of the old property. All they need to know about is the equity coming from the sale.

sonastin

If I understand correctly, your situation is exactly the same as anyone selling a property with a mortgage on it, and using the equity as a deposit, along with a new mortgage, to buy a different property? The only difference being that your current "mortgage lenders" are your parents instead of a bank or building society?

In which case, I think the "deposit" is theoretical money that solicitors exchange amongst themselves on exchage through the chain, and becomes real money when the mortgages cough up on completion. As far as I understand it anyway!

sturdygirl21

Sonastin - i guess your right - i hadn't thought of it like that and think I've been complicating it for myself.
Dubsey - hoping to buy for around the £160K mark, having a 20-25% deposit, around half of which is equity and the rest in savings.
Hopefully I don't need to declare the 'debt' to my parents - I'll let you know the outcome on that one - the broker seemed positive that it would actually look good for us when getting a mortgage as it shows that I have consistently paid off quite a large amount of money each month without any difficulties - something that the lender will want to know as technically we're first time buyers.
OK, so I think it was a stupid question after all!! Thanks everyone for responding.