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Buy to let and deposit query

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Hello
My parents are 54 and 60. They paid off their mortgage 3 years ago. They are now looking at helping me set up home.

Just a quick question (probably very stupid I know). They want to release equity in their home to buy a house on a buy to let mortgage which I would then rent off them.

My question is, how do they release this equity. My mum is too young for an equity release scheme, therefore are they able to take out a new mortgage on the property they live in to raise this?

Many thanks
«13

Comments

  • Dave_Ham
    Dave_Ham Posts: 6,045 Forumite
    Tenth Anniversary Combo Breaker
    This is achievable but there are many variables to consider and not enough information on just this opening post..

    With a broker they can sit down with you all to work through the options, which obviously is what I would suggest..

    If you have the income and credit score, there are 100% options using house as security although it all will depend upon overall circumstances..

    Good luck
    I am a Mortgage Broker
    You should note that this site doesn't check my status as a Mortgage Broker, 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.
  • Ideally what we wanted to do was take out a mortgage on the property they live in and pay this back over 15 years. This would be the money used for the deposit.

    Their property is worth approx 175000 and wanted to release about 40000 equity. They both have excellent credit scores.

    We would then require a buy to let mortgage at 80 ltv.

    Does this sound reasonable?

    We would pay rent to covert the buy to let mortgage as well as the deposit mortgage. (my partner was made bankrupt a couple of years ago so getting our own mortgage is currently out of the question).
  • betmunch
    betmunch Posts: 3,126 Forumite
    You want to take a BTL on your parents property, to release 40k of equity, then you would require another BTL at 80% LTV?

    I think you have got yourself all confused.

    Listen to Dave Ham and get a broker to sort this out for you.
    I am a Mortgage Adviser
    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.
  • Sorry I'm really congfused. How would we release the £40,000 equity from my parents home for the deposit? By taking out new mortgage on their property? Or is it just used for security?
  • betmunch
    betmunch Posts: 3,126 Forumite
    Yes thats my question to you.

    See your first paragraph in post 3.

    If they are taking out the mortgages its could happen, if you are intending to take he mortgages then your doing it wrong!
    I am a Mortgage Adviser
    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.
  • If your mum and dad release £40K on their home and use this as a deposit for you to live in then it's not a BTL on your place if immediate family.

    It would only be classed as a BTL if your mum and dad put a tenancy agreement in place....if it's for you to stay not paying rent then it's your home (if your raising a mortgage on it).
  • Right so basically, if I understand this correcrtly, they would need to take a new mortgage out on their property to the value of £40,000. This would be used as a deposit to buy a second property on a buy to let mortgage and they would need to arrange a tenancy agreement for us to rent it off them. Is this right? I wasn't sure if you were able to take out a mortgage on a property once the original mortgage was paid off? That's what I meant by paragraph 3.
  • betmunch
    betmunch Posts: 3,126 Forumite
    Simon,
    I think its mum and dad raise £40k on their residential home.
    Then they buy a BTL property which they rent to the OP.

    So mum and dad will then have 2 mortgages and 2 properties.
    Seems doable to me even with the regulated BTL product. Subject to parents retirement income
    I am a Mortgage Adviser
    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.
  • betmunch
    betmunch Posts: 3,126 Forumite
    Right so basically, if I understand this correcrtly, they would need to take a new mortgage out on their property to the value of £40,000. This would be used as a deposit to buy a second property on a buy to let mortgage and they would need to arrange a tenancy agreement for us to rent it off them. Is this right? I wasn't sure if you were able to take out a mortgage on a property once the original mortgage was paid off? That's what I meant by paragraph 3.

    Yes, your parents are taking all the risk.

    You are being the tenant.

    You can raise funding on an unencumbered property, although not all lenders will allow it.

    Also not all Lenders will allow regulated BTL's

    Hence, Dave Hams advice to see a broker is best option
    I am a Mortgage Adviser
    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.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    From my reading of what you've posted. You are looking to purchase a £200k house.

    Using a £40k deposit secured on your parents existing property and a BTL mortgage obtained by your parents of £160k.

    As the rental income will be taxable. How do you propose repaying the capital debt to your parents. In particular the £40k deposit. I assume the 15 year mortgage term you mention is due to the age of your parents.

    Are your parents fully aware of the risks that they are exposing themselves to? There are many potential pitfalls in your plan.
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