Buy to let and deposit query

kells1232002

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

Dave_Ham

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

kells1232002

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

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.

kells1232002

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

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!

Simon_gloster

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).

kells1232002

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

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

betmunch

kells1232002 wrote: »

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

Thrugelmir

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.