Borrow more on mortgage to finance startup?

micko74

I've been working on a side project for several years which I now want to work on full time and quit my job. The project has longer term income potential but I won't be making an income for at least the first 6 months and probably longer. I can't keep working on it and my full time job without burning out.

My new business won't generate any significant costs but I do need to still feed my family and pay the mortgage without my regular employment income.

To fund my life while I get the business off the ground I'm considering borrowing £40000 from my mortgage. This is my only real option as I don't have enough savings and there is no one in friends and family who has that sort of money to risk. Lending institutions want a regular repayment starting the first month which is not viable where the business will not be generating income.

I currently owe £131000 and the house is valued at £265000 so there is a lot of equity there. My current mortgage lender is also my bank so they know I have a regular income for many years and also that I have always paid my mortgage each month.

So, getting to the question....
If I was borrowing to fund some special expenditure like a home extension I'm sure the bank would have no hesitation. However, will they refuse if they know that I won't be earning a wage for a fairly long period?

TrickyDicky101

micko74 wrote: »

So, getting to the question....
If I was borrowing to fund some special expenditure like a home extension I'm sure the bank would have no hesitation. However, will they refuse if they know that I won't be earning a wage for a fairly long period?

Yes. They will only know this if you tell them.

micko74

step 2 then... after they lend me the money for 'home improvements' and it becomes clear that I have no wage coming in, do they have any legal recourse to repossess?

betmunch

micko74 wrote: »

step 2 then... after they lend me the money for 'home improvements' and it becomes clear that I have no wage coming in, do they have any legal recourse to repossess?

Do not go down this route.

Malmo

micko74 wrote: »

step 2 then... after they lend me the money for 'home improvements' and it becomes clear that I have no wage coming in, do they have any legal recourse to repossess?

It is mortgage fraud, if you declare a purpose on application other than your actual intent.

micko74

ok, so borrowing from mortgage equity to finance the business is a no go. How do people manage to get a new business going when it requires full time effort? Is there a legitimate way I can leverage the equity in my home?

Thrugelmir

Sell the property and release the equity. This will give you the funding to both develop the business and live normally.

kingstreet

micko74 wrote: »

ok, so borrowing from mortgage equity to finance the business is a no go. How do people manage to get a new business going when it requires full time effort? Is there a legitimate way I can leverage the equity in my home?

Ask your clearing bank about a business development loan.

audigex

Thrugelmir wrote: »

Sell the property and release the equity. This will give you the funding to both develop the business and live normally.

Yeah this basic idea works:

Sell the property
Buy a new property
Get a £40k larger mortgage on the new property

Once you've sold the house, it's entirely your decision how much of the money from your bank account you wish to put into your house as a deposit. The only problem there is that you'll likely clear £10k in fees just in the process of selling/rebuying.

Thrugelmir

audigex wrote: »

Get a £40k larger mortgage on the new property

Foolish idea. Majority of new businesses fail through cash flow issues not profitability. The ability to stay afloat is key. Leveraging with debt is a sure way of puncturing ones own lifeboat.

audigex

Quite possibly, but the OP didn't ask "How should I finance my new business" he asked (paraphrased) "How do I unlock £40k of capital in my home to live off for 12 months, without committing fraud?"

Personally I'd never finance my business with equity from my house ... but then I'm a cautious person who probably isn't going to take a risk and become the next Branson.