Borrowing against 1st home for 2nd deposit??

yorkshirespud

I bought a small terracced house in Yorkshire (near my dad's place) almost two years ago which I 'live' in while working in London, as I wanted to get on the housing ladder and couldn't afford what I wanted in London at the time. I bought for 80K with a 95% mortgage, and it is now worth around 95K, with about 74K left on the mortgage, i.e. about 20K equity I think.

As I said, I really wanted to buy in London, and I realistically am looking at 250K for what I require. I have been working to the assumption that I need 16% to make this possible, i.e. 15% for a deposit, and 1% for stamp duty, which works out to 40K.

I will be in the position later this year where I will have 20K saved. My question is, would it a complete non-starter (or ok?) to borrow 20K against my 1st current house via a secured loan with a 3rd party, i.e. separate from 1st house's mortgage company? This would give me the 40K I need. If I then went to another (4th party) separate mortgage company to finance the 2nd house, would this count against me, or not? Surely as far as the mortgage company for the 2nd house would be concerned, I'd be putting up the 15% at no risk to them, and only be asking for the 85% from them. Or does it not work this way?

As far as monthly repayments, I'm not concerned about that, just the starting costs. The 1st house is easily rentable (yes, I should inform the 1st house mortgage company about that, but is nothing to do with the '2nd' house, which I *will* be living in). The repayments for the 2nd house would be around £1400 (?? repayment mortgage?), and I would be renting a room out. I *could* cover the almost 2K per month on paper anyway, I'm a company director with over 3 years accounts, and make about 80K pre-tax per year.

What I want to know, is this a valild route to raise deposit capital, or is it a no-no? If I absoutely have to sell the 1st house to buy the 2nd as a straight 'move', then I will, but I'd rather not sell it.

When I had my last mortgage approved, I didn't need to prove I had the deposit to hand, I just had to hand it over to the solicitor to have the mortageg funds released to purchase the house. Surely then once the mortgage is approved for the 2nd house, if I then go and obtain a secured loan on the first to raise the remainder of the deposit, there wouldn't be any credir problems as the new mortgage is already approved, and the secured lender on the 1st property wouldn't care as it is a secured loan?

Any comments? Thanks.

silvercar

Whether it is sensible in the current market is dubious. Your northern property would be virtually 100% mortgaged, so with that secured loan on it you will have difficulty remortgaging that one to a decent rate for a long time.

As far as your new mortgage on your second house is concerned, they shouldn't be bothered about the high gearing on your northern house but they will look at your overall commitments. So having large loans and a rental income that maybe doesn't cover the mortgage may influence how much they lend you.

The order you do things may help. But if you get the mortgage offer and then can't get the loan you would be stuck. Finding someone to give you a secured loan on a property that would be in negative equity if prices fell may not be easy.