Equity release - does this work?

sg0102

Ok, bear with me, but I have an idea that I need to bounce off someone/people who know more than I.

Wife and I want to buy a new house ( to help house our growIng family). We've found a house that needs a lot of work (vendor is moving into a home) but could be perfect. We have some equity in our house but not enough to find all the improvements needed and also the min. 10% deposit required.

There is an option to borrow from the bank of mum and dad but if we did this we want to have a clear plan on repaying them. Theoretically, aftet the renovations are done, and we have increased the value Of the new property signifixantly, could we release some of this cash to repay them? Theoretically.

In terms of additional borrowIng, we could afford th repayments on a 100% mortgage which is effectively what we need.

Any thoughts on this would be really appreciated.

CLAPTON

there is no guarentee that your mortgage provider would revalue the house sufficiently nor that they would be prepared to do so.

kingstreet

You'd need to be able to remortgage after the improvements have been done. The chances of this will be improved by how much equity you will have and how much you won't be using to repay your parents.

You can't go for too long a product for the initial purchase mortgage, otherwise your remortgage options may be limited by the application of early repayment penalties.

You are unlikely to get a remortgage for a higher loan to value than you needed to purchase the property. Typically, you'll only be able to borrow around 85% of the new value when you do remortgage. If you thought about a further advance or additional borrowing from the current lender, the LTV may be lower and the rate higher, so the remortgage is likely to be the best option.

The other question - is the property mortgageable in the first place?

sg0102

Thanks for the swift response guys.

The house is mortgable - it is largely cosmetic work required - and the kitchen and bathroom need replacing.

My thinking was we buy the house for c.£200k. I think it needs about £30k work to do kitchen, windows and bathroom. Only about £10k of that would be borrowed. So if in 2 years time, with decorating also, it was worth £250k I'd be able to remortgage and pay the £10k back?

I know there are no guarantees, and would explore other ways of paying them back also.

TrickyDicky101

If its cosmetic then it won't add much to the value

sg0102

But the kitchen diner, bathroom and double glazing would? My thinking is if only need to cover my parents £10k theoretically.