remortgaging to free cash, is this how it works? *confused*

midwifevic

Hi, thanks for taking the time to read.
Im a bit confused and hope someone will be able to shed some light on this for me.

When we bought our house my dad lent us £34k (deposit plus a bit of fees, amazing dad!). House was £132,500, Mortgage 99,500.
Our mortgage 5yr product runs out next year. What we hope to do is remortgage to release some of dads money back to him, as much as is possible really. Our house is prob worth about £136k now.

Am i right in thinking that we could aim for an 85% ltv mortgage, so based on £136k value would borrow 117,300 and thus need a deposit of £20,700. BUT because we have paid some of our mortgage off we would pay a bit less to last mortgage company and free up a bit more this way?

I would really appreciate any clarification, i have baby brain and am finding the whole thing a bit bamboozling!

holly_hobby

Before discussing the reason for remortgage.

Max borrowing on a remortgage is based on the applicants income, and the lenders max LTV against your current property valuation.

How much equity the exercise will actually free up for release, will be the difference between the property value and max ltv (the difference effectively being the deposit you're referring to), against the existing outstanding mortgage.

For example ....

Your property is currently valued at 100k, you have an outstanding mortgage of 60k.

The maximum the lender will allow for equity release is 85%, which as the property is valued at 100k = 85k

Therefore the maximum you can release (income supporting), would be 85k (max available loan) less 60k (current os mge) = 25k.

So you could increase your mortgage borrowings by 25k.

Does that make sense ? Hope so.

The fly in the ointment here, is that you wish to release equity to repay your Dad whom gifted you your deposit.

The lender as part of either further advance or remortgage process, will want details of what the capital is specifically for - and therein lies the problem.

As the issues are that Dads deposit gift would have been confirmed as part of your mge application, as being an unreserved gift (ie made without requirement of repayment). So now saying you are to repay him the same deposit, means that it wasn't a gift at all, and essentially that your initial application was lets say "inaccurate" .... so be very careful what you cite as your reason for the equity release exercise.

Of course you could state another reason for releasing the pretty hefty 34k, be that a new kitchen, car, improvement works, etc , but beware at this level of equity release, the lender will typically require some kind of verification of what the funds are and have been used for ... be that estimates and final bills, or whatever verification the lender feels is appropriate for the basis of remortgage.

Hope this helps

Holly

midwifevic

Thats really helpful thank you. Just wish the independant financial advisor who told us this is how we would make it work when we took out the mortgage had said that freeing it may not be as simple as he made it sound...hmmm

midwifevic

Would it be too simple to state that it was gifted at the time however his financial situation has changed and i would now like to gift him some money..!

holly_hobby

In fact the broker should not have facilitated the mge application in the first place, if he knew at the time Dads "gifted" deposit, wasn't a gift at all ..... :cool:

Its really Dad who would be the loser in all this, as if for whatever reason the house was the subject of a possession order, he would have no claim on his capital injection at all.

Anyhoo, you have the bones on what the process will be ..

Hope this helps

Holly x

holly_hobby

midwifevic wrote: »

Would it be too simple to state that it was gifted at the time however his financial situation has changed and i would now like to gift him some money..!

Yes ... IMHO, doubtful the UW wouldn't make the link or find the story believeable - to which it wouldn't be an acceptable basis of remortgage in any event.

You could say its to repay a wholly private loan arrangement (nothing to do with the gifted deposit !) - and see if they are happy with that basis and what the max ltv they would offer ?

Give then a call and tread the water ...

H x

midwifevic

Thanks again. Can anyone think of a solution? Perhaps i will have to move house and start anew!!!