Equity to place a deposit for a mortgage

batman81

My wife has equity in another property but we have no solid savings. We want to move home as we would like to extend our family.

One option available to us is using this other property as equity for a deposit.

How does it work?
I have a meeting with bank on Saturday to find out about it a bit more.

They mentioned something about borrowing against it or giving up your whole part your share of the other property.

How do they mean borrow against? So do they mean it basically becomes a 100% mortgage?

kingstreet

To what use is the other property put? Is it let and producing rental income?

If it is, she could remortgage it, normally the lower of 75% of the value of the property, or the mortgage amount which corresponds with;-

rent = monthly mortgage interest x 125% assuming 6%pa.

For example, a property worth £100,000 with £500 monthly rent.

75% = £75,000

and

£500 / 125% = £400 / 6% x 12 = £80,000

So, in this case the maximum would be £75,000 as that is the lower.

The answer to your question will depend on the answer to the above.

Once that is resolved, you then look to purchase a property using the capital raised as a deposit, with a mortgage to make up the difference. It may be sensible to try to see if you van get both mortgages to sit just under 60% loan to value, then you get the best rates on both.

You'll need a lender which will ignore the let property/mortgage in the background as self-financing, rather than one which will "tax" your incomes with the cost of the other mortgage, just in case you have a void period with no tenant.

batman81

kingstreet wrote: »

To what use is the other property put? Is it let and producing rental income?

If it is, she could remortgage it, normally the lower of 75% of the value of the property, or the mortgage amount which corresponds with;-

rent = monthly mortgage interest x 125% assuming 6%pa.

For example, a property worth £100,000 with £500 monthly rent.

75% = £75,000

and

£500 / 125% = £400 / 6% x 12 = £80,000

So, in this case the maximum would be £75,000 as that is the lower.

The answer to your question will depend on the answer to the above.

Once that is resolved, you then look to purchase a property using the capital raised as a deposit, with a mortgage to make up the difference. It may be sensible to try to see if you van get both mortgages to sit just under 60% loan to value, then you get the best rates on both.

You'll need a lender which will ignore the let property/mortgage in the background as self-financing, rather than one which will "tax" your incomes with the cost of the other mortgage, just in case you have a void period with no tenant.

Thanks for that. I am even more baffled.

The property is being used by the in laws, they do not pay us rent as it is their house really but they have signed it over to their daughters already to avoid anyone else taking it from them. So it does not make us money.

ValHaller

batman81 wrote: »

.... The property is being used by the in laws, they do not pay us rent as it is their house really but they have signed it over to their daughters already to avoid anyone else taking it from them. So it does not make us money.

While you might be within your rights to mortgage that property, if you defaulted, the in laws would be the ones on the street if a repo was ever ordered. As it is, you would have to get the agreement of all of the co-owners.

I would say that this is something to avoid doing.

Wh05apk

I think given that the inlaws live in the property, and effectively gave it away, you would struggle to get a lender to agree to this, as there are so many implications in terms of IHT/bankruptcy/repossession on your part. If a lender would do it, all owners would have to agree to the remortgage as well, it is not just something your wife can do with her "share"

kingstreet

I agree. The property is owned by two sisters, so the other sister would have to be party to the mortgage. Then, you have the occupancy and rent issues on top.

Non starter. IMHO.

bigadaj

batman81 wrote: »

Thanks for that. I am even more baffled.

The property is being used by the in laws, they do not pay us rent as it is their house really but they have signed it over to their daughters already to avoid anyone else taking it from them. So it does not make us money.

Seems little point in signing it over. Unless the in laws pay a market rent it is a gift with reservations and won't avoid falling into inheritance tax, or be considered for payment if they go into care etc.