Equity Release LTV Rates

Bigbert

Hi, this may be a bit of a long post but please stick with me.

So my partner and I recently made the decision to purchase a second property close to where we work in England as renting is just wasted money. Our first property is in Northern Ireland which we want to keep as it's somewhere to stay when we travel home to visit family.

To gain the capital needed for a deposit for our second property we have decided to look into the option of equity release from our first property. Originally during an enquiry call we were advised that the LTV for this equity release would be 85% meaning we had to keep at least 15% equity in the first property, this equated to a maximum equity release of £19,000.00. However, 2 days later we called to proceed with the application and were advised that due to the equity release being for a second home it would be at an LTV rate of 80%, so we would have to retain 20% equity in our first house meaning the maximum equity release would be lowered to £12,000.00.

Now at this point my logical side kicked in and I began asking questions, why would the LTV change depending on what you spent the equity release on? It's essentially a loan secured against a house, a loan is a loan as long as it is repaid in full why should what it is used on matter. For example if I wanted it to buy a car (a horrific investment of money) they'd give me £19k where as if I wanted it to purchase a house (a reasonably safe investment) they'd only provide £12k. Surely it should be the other way around?!

My questions to you lovely people are:-

1. Am I missing something really obvious or does this whole system seem a little backwards? (Are the banks being influenced by government to stop lending to second home buyers?)

2. If I apply for a single equity release for 2 reasons, one for a mortgage deposit and one for a new car or decorating do they have to work on 2 different LTV rates?

3. Is it still possible to speak to higher ranking people in banks nowadays as the telephone mortgage teams tend to just stick to a script?

It all seems really stupid to me, for instance here's a sneaky scenario to consider (disclaimer, I have not would have any intention of doing this, it is purely hypothetical) I apply for the equity release to buy a car. I get my 19k and buy a car from a friend at the dealership who then refunds it (with an exchange of brown envelopes) as it was "faulty". I then use that 19k for a deposit on a house... The bank knows none of this and they will still get their loan repaid so much why should they need to.

Nebulous2

I doubt if the bank would ever check whether you bought a car or not. That's not the point however. I bought a second home partly by mortgaging my first house. They specified repeatedly during the process that the second home couldn't be let. (It wont be) It would be impossible for them to police that as far as I can see as the second home doesn't have a charge on it at all.



If you want to buy a second home and the financing is complicated, go and speak to a broker who will go through the options and work out the best way to proceed. Don't try to subvert the system by being clever - it may very well come back to bite you later.

Bigbert

Yeah I doubt the bank would ever check either, as I said a loan is a loan the bank shouldn't care as long as the money is repaid and there is a low chance of a default. However thats why I am confused as to why what I spend the money on is affecting the LTV rate, logically it really shouldn't.

I don't want to have to waste money on a broker purely because of Santander's poor practices. This is a simple equity release application that they have made complicated purely because it is being used for a second home.... It's ludicrous.

foxy-stoat

As backward as it seems, its their rules/policies.

If £7K is going to be an issue then you could move your mortgage to another lender and borrow your full amount upto 85% LTV.

Mortgages are worked out by computer based on information inputted by a small number of humans - so in the boardroom the additional lending criteria for second homes in your case would of been worked out already by your lender and all lenders have different policies - same for debt consolidation, max LTV they would lend is up to 75%, but if I wanted an expensive car then they would happily lender another 10%.

foxy-stoat

Bigbert wrote: »

Yeah I doubt the bank would ever check either, as I said a loan is a loan the bank shouldn't care as long as the money is repaid and there is a low chance of a default. However thats why I am confused as to why what I spend the money on is affecting the LTV rate, logically it really shouldn't.

I don't want to have to waste money on a broker purely because of Santander's poor practices. This is a simple equity release application that they have made complicated purely because it is being used for a second home.... It's ludicrous.

Apart from knowingly putting false information on a mortgage application would equate to mortgage fraud - in your case its the reason for the funds - how you would get found out I am not sure nor what would happen if you actually did, as long as the payments were being made but if you want to risk the consequences for an additional £7K would be up to you, I dont think I would.

Bigbert

I would never commit fraud the example is purely hypothetical to show just how stupid their policy is. Also if the car was purchased and refunded technically it wouldn't be fraud as the funds would have been used for their stated purpose. It's no different to selling the car at a later date. But as I stated it's purely hypothetical, I don't have any inclination to do that plus frankly I'm too lazy to anyway

System

So my partner and I recently made the decision to purchase a second property close to where we work in England as renting is just wasted money

No it isn't. Rent is also usually not much different than the total cost of ownership of a house during a mortgage period.

Bigbert

Please show your maths for coming to this conclusion.