unlocking extra equity...

nexus7

Could someone advise on the following ways to unlock extra equity from a house.

Two scenarios:
A: A person applies to unlock equity for a deposit for BTL investment. Am I right in thinking some lenders factor in the total borrowing of both properties whilst others ignore it if the rental covers 125% of the btl mortgage?

B. A person applies to unlock equity for a car or other "spend" such as a holiday etc., all they would then check is that the person can afford the additional payments on the extra borrowing.

Hypothetically, is there anything illegal against borrowing the money initially for a car/holiday, changing my mind afterwards and using the deposit for something else not necessarily including a BTL (if circumstances change for the better/worse)?

Also:
C: Apart from the inconvenience of moving lenders a person could simply re-mortgage with another provider, again would they care what the extra capital is used for?

Does anyone have an idea of which lenders "care" and which don't regarding BTL investments?

Thrugelmir

D. Lenders increasingly look at the proposed purpose use of the funds. Repaying a loan for a holiday or car over say a 15 year term makes no sense.

jgh

nexus7 wrote: »

Hypothetically, is there anything illegal against borrowing the money initially for a car/holiday, changing my mind afterwards and using the deposit for something else

May not be illegal, but certainly likely to be breach of contract.

nexus7

jgh wrote: »

May not be illegal, but certainly likely to be breach of contract.

Surely they can't stipulate what it must/must not be used for on or would they not "unlock" the funds until they were required?

I've also thought of another scenario... whereby the money is invested in savings that beat the mortgage rate (difficult but not necessarily impossible)

Do they view the fact that you're making money from their money kindly? Given that's essentially what most people do with offsets anyway?

GMS

Releasing equity for busines purposes would be a decline with the vast majority of lenders would. Releasing equity for a Buy to Let is a commercial venture to all intents and purposes.

Telling them it is for a car and a holiday may well mean it is approved and you could argue the bricks and mortar is a better risk however it would still be a fraudulent application and potentially a huge issue.

Best to be honest and 100% up front, that way you are not looking over your shoulder and worrying.

If you need to fudge an application through then I would suggest not doing it.

Conrad

As ever I cannot condone it, but it's completely normal for folk to state they are borrowing for a purpose such as home inprovments, and then end up using to buy another property.

Annita Roddick set up Bodyshop doing exactly this.

It's a bit like driving over 30 in a 30 zone whilst eating a bag of crisps - most people do it at some point and the world doesn't end.... although strangely enough I stick to 30 as I fear running over a child or pet, and most folk behind me get the hump, so I conclude that in fact most people will break rules if it suits

dunstonh

I remember that prior to the credit boom you used to have to say what the borrowing was far and often had to prove it. I recall the branch manager visiting people to see how the money they borrowed for their extension was being spent on the extension.

During the credit boom, they didnt give two hoots what you spent the money on.

Post credit boom it would be nice to see them take more interest again in how it is being spent although not perhaps to level prior to the credit boom as that was quite restrictive at times.

Conrad

dunstonh wrote: »

Post credit boom it would be nice to see them take more interest again in how it is being spent although

On the other hand everyone wants lowest cost, and lenders sending out valuable costly staff on home visits is at odds with that objective, something mosr mse bargain sucking types would not like one bit........:rotfl:

It's like when mse types claim they believe in fair pay for workers, and yet go out thier way to find bargains made by Chinese dolla a day folk

dimbo61

Had to reply to this thread
When I recently asked to borrow extra money to pay for an extension my bank manager wanted to see the plans, building regs, planning approval! and asked for updates ( sent photos ) of the build.
Money was released as worked progressed direct to the builder.
When the work was finished 2 bank staff visited the site to inspect the work.
I now have to pay for a valuation of the property to prove to the bank that the whole property is now worth £X amount.
This is a BTL investment but banks are being much more carefull with there lending

nexus7

Turns out after an hour on the phone with option A... they want to include the BTL borrowings as well as the main residence borrowings if you've not owned the BTL for 3 years (e.g. you can't count the rent as income)

They then also assume that the interest rate will be 7% for the foreseeable (until the mortgage finishes) making the situation (for my salary) somewhat retardedly expensive.

I tried explaining that I have a reasonable (5 digit) cash reserve that can more than cover the "what if it's not let for x months" questions they came up with but their argument was "you could spend that tomorrow", to which my argument is "yes I could, but I've just explained my "plan" to you and that's not part of it."

So it looks like if I want to fritter away the money on cars holidays or gambling they'd be fairly happy, but for a sensible investment in bricks and mortar in which the risk in my opinion is very low to them (the extra capital is no where near the full value of my house + the saving buffer) is a big fat no.

Do I have any other options than (remortgage the whole lot or sell my house). I assume I can't really "appeal" their decision as their lending criteria is somewhat set in stone?

Also to answer the "why do you use the cash" to buy a property?" I might consider it, I'd just like to release equity from my house first (at which point the cash would be used to offset it anyway - depending on rates) until such time as another BTL make sense. I figure and given what I've experienced so far that unlocking the equity first is the more sensible option (before they factor in more than 1 property and higher borrowings). That or I have to wait 3 years before the income counts and the BTL isn't "part of the borrowings".

ARGH... slight rant over!

opinions4u

dunstonh wrote: »

I remember that prior to the credit boom you used to have to say what the borrowing was far and often had to prove it. I recall the branch manager visiting people to see how the money they borrowed for their extension was being spent on the extension.

I made quite a few of those visits. Usually on the way home. Often as a drive past just to make sure!

Similarly I'd send lower level staff out do ensure work was progressing on their route home - letting them go a few minutes early!