Purchase Taking Longer Than Expected. Cashing in Mortgage before it expires. Where to put money?

CookhamDude

So our house purchase began back in August of 2021, then we finally got the mortgage approved and lender's offer (sub-1%) which expires at the start of April 2022. Unfortunately, the property our vendors are purchasing (a probate) is dragging on and we may find ourselves not completing for another month or two after our offer expires.
As our vendors are committed to selling to us and equally committed to buying the probate property, we're prepared to activate the mortgage and sit it out. Our quandary is, what to do with the money to compensate for the circa £500 of interest we'd be paying on the mortgage repayments? From what I can see, even the best interest rates are only offering 0.8%. Any suggestions?

user1977

What do you mean by "activate the mortgage"? It's not going to start until you complete your purchase.

Slithery

Does your lender allow this? It would be very unusual if they did.

propertyhunter

Normally your mortgage is secured on your property, so it's unlikely to funds would be released without you owning the property. Are you saying you can draw down the mortgage funds without owning the property? 

Otherwise, people in your situation apply to the bank to have the offer extended by a couple of months. 

CookhamDude

In answer to the questions, the property we are buying will be a second home, we are not selling our family home in order to purchase. We can 'complete' at any time as long as it's a week before the mortgage offer expires, however our conveyancer has said he can't sit on the money so once funds are released we will need to deposit it somewhere until the funds are needed to physically make the purchase on the property. I hope this makes sense! TIA

CookhamDude

propertyhunter said:

Normally your mortgage is secured on your property, so it's unlikely to funds would be released without you owning the property. Are you saying you can draw down the mortgage funds without owning the property? 

Otherwise, people in your situation apply to the bank to have the offer extended by a couple of months. 

Unfortunately, the lender will not extend the offer at the same rate we currently have, so we'd be paying an extra 1.5% for a new product

user1977

CookhamDude said:

In answer to the questions, the property we are buying will be a second home, we are not selling our family home in order to purchase. We can 'complete' at any time as long as it's a week before the mortgage offer expires, however our conveyancer has said he can't sit on the money so once funds are released we will need to deposit it somewhere until the funds are needed to physically make the purchase on the property. I hope this makes sense! TIA

No, it doesn't make sense. The whole point of a mortgage is that the lender gets a security over the property. They don't get that unless you're the owner. They're not going to let you have the same loan on an unsecured basis.

Your solicitor can (for a very short period) hold the funds if completion is imminent, but that's because they're trusted to send the money straight back to the lender if they have to - you're not going to get your hands on it.

wilfred30

Are you remortgaging your current property or taking out a completely separate mortgage on your purchase?

saajan_12

CookhamDude said:

In answer to the questions, the property we are buying will be a second home, we are not selling our family home in order to purchase. We can 'complete' at any time as long as it's a week before the mortgage offer expires, however our conveyancer has said he can't sit on the money so once funds are released we will need to deposit it somewhere until the funds are needed to physically make the purchase on the property. I hope this makes sense! TIA

There's two issues, you seem to be focusing on the second, but people are asking about the first which still doesn't make sense and may be a dealbreaker.
1) Mortgages are loans secured on a property that's owned by the borrowers - what will the charge be placed on if you don't yet own the 2nd property?
- If it'll be secured on your family home, then do you have another mortgage there and is the new mortgage a BTL or residential?
- Has the lender done surveys and searches on the property that'll have the charge?
- If / when you port the mortgage to your 2nd property, the surveys and searches will need to be redone. 

2) What to do with the money in the interim to compensate for the interest - 
- Practically this is up to you, there are some easy access accounts with ~0.8% interest, or notice accounts with  1%. Note this would be subject to income tax subject to any allowances you have, but it gets you most of the way. 

Flugelhorn

I did this - took out mortgage on home I owned in order to buy second home unfortunately the onward purchase  didn't happen so ended up with 180K in the bank - it was an offset account so fully offset and no interest to pay, left it there until we sorted another purchase

tricky now to get enough interest to cover costs 

CookhamDude

wilfred30 said:

Are you remortgaging your current property or taking out a completely separate mortgage on your purchase?

We are remortgaging on our current property on which we currently owe just over £300K (value of property £1.2m). The property we are buying is £705K