Remortgage to buy a place in France

Matingbee

I'm having problems finding a new lender so I can buy a second home in France. I am 60 and my wife 63. We are fortunate that we have a small farm with properties in Cornwall, currently valued at £650K. At present we have an offset mortgage paying interest only and currently owe £72.5K. We would like to borrow a further £100 to £150K (again interest only) to buy a place in France. The idea being, we sell our current dwelling in 5 years to buy a smaller place in Cornwall and also pay off the mortgage. We are both self employed and have a verifiable anual income of £25K between us which includes an income from holiday cottages and a food business. The usual banks are not too keen on my proposal, so I am looking for alternative lenders. Can anyone help?

Thrugelmir

Without question it's your income that's the barrier. Your proposed mortgage debt is over £200k on an interest only basis. From a lenders point of view there's a high risk of default. So not worth the risk.

Given you have the equity. Perhaps change tack and realise the equity before purchasing a property in France.

Matingbee

Thank you for your quick response. Equity is high, income is low. Even a loan of £170K would probably be enough. We both considered selling our farm here in Cornwall, but it caused us too much stress as we have put so much money and time into the project, which is now finished, so we do want to enjoy it for a few years. However we also love France, so are keen to buy something there, for the experience. Surely a total "Interest Only" mortgage of £170K on a property worth £650K must work with some lenders out there, I just don't know who to ask. Any advice on this would be much appreciated. Thanks

holly_hobby

For those lenders whom are still paddling in regulated IO waters, they all require an independent (of selling the mortgaged property) repayment vehicle(s) - which can include the sale of other unencumbered properties.

But you won't obtain an IO mge, with no repayment vehicle -and thats setting aside the income issues - which on the figs given, would equate to a whopping equivilient multiple of over 8 x joint income (based on the 25k fig mentioned) - which rather begs the question from the lender, on how you will actually meet the monthly repayments in any event.

The only market where IO (without an independent repayment vehicle) is still freely available, is the Buy To Let arena (which affordability is also based on rental income, not earned income) - this is because it currently remains unregulated lending.

Could you refinance your existing let units ? And/or move into rented/alternative accomodation, remortgage your main home onto a BTL (letting it to a 3rd pty of course, and on the basis of rental income at 125% of mge interest, and any max eq release lender criteria), and go that route to release the reqd equity ? (associated mge interest will be a permitted tax deduction for rental income reporting purposes).

Other than that, and ignoring lifetime mortgages (where income/servicing the debt, isn't the driving factror), because you know you will be redeeming in 5 yrs or so, and will suffer a hefty ERC, you are really only looking at the investment bank route here (again generally fruity interest, admin and exit fees) - or as suggested start liquidating assets.

Hope this helps

Holly

Matingbee

Thanks for your help Holly. Our problem is we want our cake and eat it!! We live in an idyllic location and don't want to move just yet. Unfortunately emotions get in the way of realistic financial decisions. I have put in a call to L&C. They will probably tell me the same as you, but I can at least go into further detail about our circumstances than is really possible on a forum. I'll let the forum know how I get on.

Cheers for now

Matingbee

holly_hobby

Your major issue is that your joint income of 25k is simply not sufficient to support over 220k of borrowing (and thats if there are no other commitments and the rental units are all self supporting), further complicated by your desire for an IO (with no independent repayment vehicle) arrangement.

I wish you well, and you've some off pieste thinking above.

Holly x