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Taking Equity out of one house to buy another

edited 30 November -1 at 1:00AM in House Buying, Renting & Selling
7 replies 45.9K views
Matt_LondonMatt_London Forumite
5 posts
edited 30 November -1 at 1:00AM in House Buying, Renting & Selling
Dear all, I would appreciate the forum's advice on my current situation:

I currently own a two bed house with an LTV of 50%.

I have had an offer accepted on a three bed flat and I plan to fund the deposit through taking equity out of my current mortgage taking the LTV on my existing to 75%.

My current lender has said they won't let me take equity out, if it's going on a deposit (I need to say its for something else) and if I turn it into a BTL mortgage now I can't get any equity full stop.

I need to move quickly as the seller is in a rush.

My plan is to quickly apply to take equity out under the existing residential mortage, apply for a new mortage with a new lender that doesn't mind I have two residential mortages, then go back to my existing lender and change the mortage to a BTL in the future.

A few questions:

1) Can I run both applications (for a new mortgage and taking equity out) at the same time - as long as I tell my new lender what my new payments on the existing mortgage will be? - if not what is the minimum time I should wait?

2) Is there a minimum time that I should wait after taking out the equity on the existing residential mortgage before applying to turn it into a BTL?

3) Would there be any come back from the existing lender if they suspect I've used the equity to fund a new deposit when I apply to turn it into a BTL?

4) Lastly - if I don't change my existing mortage to a BTL and rent it out what are the likely implications?


Thanks in advance,

Matt

Replies

  • poppysarahpoppysarah Forumite
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    If you want the "equity" out of the 2 bed house then sell it.

    Houses ARE NOT cash machines.
  • anselldanselld Forumite
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    My current lender has said they won't let me take equity out, if it's going on a deposit (I need to say its for something else)

    So is your plan to tell them it is for something else, get the money, and then use it for a deposit anyway?

    If so I suspect this would potentially be mortgage fraud. ie You would have lied about the purpose in order to obtain the funding. Your mortgage company will not be happy when they find out.

    The (legal) alternative is to remortgage your current residential in full with a company that is happy to release equity and is less fussy about the purpose. Then apply for the BTL. I am not sure of the timing between the two.
  • kingstreetkingstreet Forumite
    36.3K posts
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    I have had an offer accepted on a three bed flat and I plan to fund the deposit through taking equity out of my current mortgage taking the LTV on my existing to 75%.
    Sounds ok so far.
    My current lender has said they won't let me take equity out, if it's going on a deposit (I need to say its for something else) and if I turn it into a BTL mortgage now I can't get any equity full stop.
    If you ask your lender for additional borrowing, they can decide what purpose they accept this borrowing is put to. Frankly, I'm surprised. Most lenders only concern is tax debts and business start-up capital.

    I don't see why the BTL remortgage route can't be used. You should be able to increase the mortgage to 75%, perhaps slightly higher, as long as the rental income exceeds the interest-only mortgage payments, assuming a rate of perhaps 6%, by 25%.

    Eg - property value 100k, 75k mortgage @ 6% = £375 per month x 125% = minimum rent required £470 per month.
    I need to move quickly as the seller is in a rush.

    My plan is to quickly apply to take equity out under the existing residential mortage, apply for a new mortage with a new lender that doesn't mind I have two residential mortages, then go back to my existing lender and change the mortage to a BTL in the future
    Unless the seller has a magical property with multiple potential buyers, it shouldn't take that long you are at risk of losing the purchase.

    Setting the current property up on a BTL now will be quicker and will cut your costs compared with your idea.
    A few questions:

    1) Can I run both applications (for a new mortgage and taking equity out) at the same time - as long as I tell my new lender what my new payments on the existing mortgage will be? - if not what is the minimum time I should wait?
    Yes. You can run a BTL remortgage application and a residential application at the same time.
    2) Is there a minimum time that I should wait after taking out the equity on the existing residential mortgage before applying to turn it into a BTL?
    You shouldn't have to do this. You won't be turning it into a BTL either. You'll be asking your existing residential mortgage lender for consent to let.
    3) Would there be any come back from the existing lender if they suspect I've used the equity to fund a new deposit when I apply to turn it into a BTL?
    Starting off by obtaining money from your current lender by deception isn't a smart idea.
    4) Lastly - if I don't change my existing mortage to a BTL and rent it out what are the likely implications?
    The lender can demand the repayment of your mortgage and increase your interest rate to reflect the higher risk of non owner-occupied lending.

    I presume you are planning to live in the new purchase? You haven't mentioned it.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
  • Thanks for the advice anselld and kingstreet - I've taken a Let to Buy out on my current house and porting my mortgage account across.

    Poppysarah - they are when you're 30 and you cant rely on a pension...
  • I have a LTB mortgage and was in your position. It worked absolutely seamlessly. What I did to help the process is continue to live in the house I'd got the LTB mortgage on until I'd finished the purchase on the new house, decorated it and moved the furniture in. In the interim time before moving I sorted out a tenant so there was no period where I ended up forking out for both mortgages without a rental income.
  • abankerbutnotafatcatabankerbutnotafatcat Forumite
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    Sorry, haven't read other replies but just a quick summary of my experience last year:
    Told my existing lender NatWest of my plan and they issued me with a consent to let and offered additional borrowing up to 75% LTV. Simultanously, I took out new borrowing to purchase new property.
    I was completely up front with both lenders.
  • kk20kk20 Forumite
    129 posts
    We looked into this. HSBC wouldnt fund a remortgage or additional borrowing for deposit on a house. Northern Rock would (and were still competetive). I wouldnt lie to the mortgage company, i.e. I need 60k for an extension then spend it on a deposit.
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