Remortgage to buy new property?

[One More Solo]

I'm struggling to find an answer to this. We have c£150k of equity built up in our current house but are looking to move in the near future and have found a place we really like and would like to make an offer. Our house is not on the market yet but we would expect it to sell very quickly based on recent experience of our neighbours. We accept that this is a bit of cart before horse situation and makes us unattractive to sellers.

I did wonder if an option would be to fund the deposit on the new place by additional borrowing on our existing mortgage which we would then look to repay once the sale of our place goes through. This seemed like a cheaper option than a bridging loan and would take the chain out of the equation.

The key things seemed to be making sure our total borrowing was less than our affordability ceiling, and that the additional borrowing on our current place didn't make our mortgage here exceed 85% LTV. We would be OK on both counts.

I'm guessing there is a reason this isn't possible so please poke holes in it.

 

[ChrisD.]

I'm not sure I understand? Just sell your house and move into another house and your equity is your deposit so to speak. You won't be buying a second house until yours is sold unless you fancy paying second home stamp duty.

 

[danb21t]

I'll be surprised if the agent even entertains an offer without an offer on your existing property.

You'll need to provide the agent with proof of funds, AIP etc.

I know that doesn't really answer your question though. As ChrisD said, get it on the market, then make your offer.

Alternatively, speak to a mortgage broker / financial advisor..

 

[One More Solo]

I'm not sure I understand? Just sell your house and move into another house and your equity is your deposit so to speak. You won't be buying a second house until yours is sold unless you fancy paying second home stamp duty.

Ah, the stamp duty point is a big issue I'd not considered.

We are looking to list this week but I was just thinking of fallback options as we love the new place.

 

[Peerzy]

You have a few issues with doing this.

* The £150k equity may only mean you can take out £100k from the property (as you'll need to keep a certain amount of equity).
* You'll pay the additional stamp duty on the second property, you can claim this back if you sell your 1st property within a certain timeframe (I want to say 3 years)
* The hardest part - getting the mortgage. As you'll have the largest mortgage possible on your first property so this will reduce affordability on the new place.

Say house 1 (existing property) is worth £300k and you can take £100k out of it, leaving 15% equity (£45k). House 2 is £450k, you use your £100k to buy this. Stamp Duty will be £23,500 and after fees such as solicitors, searches, moving costs etc... lets assume you are left with £72k for the deposit (roughly 16% deposit). You need to be able to sustain £633k of borrowing which is roughly a household income of £125k (assuming basic 5x multiplier and no other big debts or car loans).

You can claim back £13,500 in stamp duty provided your old property sale completes within 3 years. If you rent out property 1 it can be removed from your mortgage liability (so in the example above you'd only need to be able to sustain £378k on mortgage affordability) however you'll need to move property 1 onto a specific BTL mortgage deal which will likely need you to have 25% equity and cost more.

It can be done, but is fairly rare because the mortgage affordability figures are high compared with the property prices. Not many people earn 1/3rd of their existing property value each year for example.

FWIW - moving into rented IF required to ensure the chain completes can be fairly cheap in the grand scheme of things (few thousand for a couple of months + storage) and avoids needing to claim back £13,500 and satisfy the mortgage affordability on the big numbers.

 

[ChrisD.]

I actually looked at letting my old house out, a trick you can do is put it onto a really long term interest only mortgage but you may be tied in and end up having to pay ERC to change the product. It's not easy and you need a lot of capital as stated above.

If you are confident your house will sell fast then look to only sell to FTB or to someone who is selling to a FTB as it will minimise the chain, or as stated above move into rented.

 

[HangTime]

I looked into this a few years ago when we were considering moving, as it would be much easier to prep a house for sale without living in it and remove any need for a chain. So the idea was:

• Mortgage current house
• Add the savings pot
• Buy new house using funds from the above steps [this would be a second home and hence incur a stamp duty surcharge]
• Sell old house
• Repay mortgage
• Reclaim stamp duty surcharge

I think your situation is a bit more complicated though as it sounds like you would also need a mortgage on the second property? Even so, it's not really that different from what property developers often do, leveraging the equity in existing properties to fund purchases of new ones. I think the challenge could be the lead time though, I mean in order to demonstrate funds to the EA / Lender on the second property you'd need to have additional borrowing on the first all done and dusted - if as you have stated:
1) You are looking to list this week;
2) You expect it to sell very quickly.
...then it might be a bit of a faff and not even that efficient to take out the additional borrowing. You could be sat here next week with an offer on the table. So there is an argument that you should just focus on getting your property sold as you will need to concentrate on that eventually.

 

[dlockers]

I looked into this a few years ago when we were considering moving, as it would be much easier to prep a house for sale without living in it and remove any need for a chain. So the idea was:

• Mortgage current house
• Add the savings pot
• Buy new house using funds from the above steps [this would be a second home and hence incur a stamp duty surcharge]
• Sell old house
• Repay mortgage
• Reclaim stamp duty surcharge

I think your situation is a bit more complicated though as it sounds like you would also need a mortgage on the second property? Even so, it's not really that different from what property developers often do, leveraging the equity in existing properties to fund purchases of new ones. I think the challenge could be the lead time though, I mean in order to demonstrate funds to the EA / Lender on the second property you'd need to have additional borrowing on the first all done and dusted - if as you have stated:
1) You are looking to list this week;
2) You expect it to sell very quickly.
...then it might be a bit of a faff and not even that efficient to take out the additional borrowing. You could be sat here next week with an offer on the table. So there is an argument that you should just focus on getting your property sold as you will need to concentrate on that eventually.

Presumably a lot of folk will want to port their existing mortgage to the new house to avoid ERC. Freeing up the equity to enable this in the first place may mean you are in at least a 1 year or 2 year deal?

 

[Slade2]

It is possible as long as you owe less to the banks than the value of the assets they are lending against. I know two single people who had houses together and wanted to move in together managed to get a mortgage on a larger property without selling either of the other ones because they had lots of equity in the existing properties. So, got the new property, moved in and then changed the mortgage on the other properties to buy to let ones and rented them out. This was a few years back and the main larger house only has an interest only mortgage and the plan is to sell both of the other small properties when the mortgages are settled and pay off the mortgage on the larger house.

I also know a guys who has about 15 properties all mortgaged on buy to let mortgages and he owes about 1.5milion to the banks but the assets are worth more than that and the banks keep lending him more.

 

[HangTime]

^^yep obviously people who are subject to ERC will need to do the sums on whether it is worth terminating early, and they tend to be quite commonplace these days. Taking a mortgage with no ERC is likely to cost more in other areas but e.g. the interest rate may not be a big concern if it is being used essentially as a bridging loan.

 

[dlockers]

^^yep obviously people who are subject to ERC will need to do the sums on whether it is worth terminating early, and they tend to be quite commonplace these days. Taking a mortgage with no ERC is likely to cost more in other areas but e.g. the interest rate may not be a big concern if it is being used essentially as a bridging loan.

Good shout, didn't even consider low/no ERCs may exist. Presumably perfect for this purpose!

 

[HangTime]

Occasionally you even see fixed rate mortgages with no ERC although it's pretty rare. Leeds BS have a "Flexit" product like this. Rates won't be the most competitive, and they will carry setup fees for obvious reasons, but it can be done. Depending on the amount borrowed, it may or may not be worthwhile considering (it probably doesn't make sense to pay large setup fees for a short term loan unless borrowing huge amounts).

 

[kevman]

Banks are also cautious if you own two houses without renting/ doing something with the one you are not living in. You mortgage offer for your new place would have to be based on owning two houses

 

[Bald-Eagle22]

Yes you can do this but understand you will pay an enhanced stamp duty ( second home ) and be liable for 100% CTAX on both properties.I

I’ve just done a similar thing myself - but I did con the bank . Effectively I applied for a mortgage on the new property ( 345K gulp ) on a standard variable rate ERC free and when my other house went though cleared nearly all of it and then fixed the balance .

I even played along the buyer on my old house after listing it after I made an offer on the new one and managed to exchange and complete for both properties on the same dates and alleviated any stamp duty due below 500k on the new house. My solicitor , bank and estate agent all commented on what a crafty bugger I had been - all my solicitor wanted was a confirmation of completion date on the old house to do this. It was pretty stressful to be fair and it was a daily juggle- not for the faint hearted.

It effectively makes you a far more attractive proposition into today’s housing market .

However - house prices have been totally inflated over the last year by stamp duty exemption and I feel in three months time things will be different. And I’ll forcast a correction late next year if inflation doesn’t control itself .

 

[Bald-Eagle22]

Banks are also cautious if you own two houses without renting/ doing something with the one you are not living in. You mortgage offer for your new place would have to be based on owning two houses

There are still brokers with direct lines into underwriters and are still economical with truth - and I’m talking prime lenders.

 

[BUDFORCE]

When it comes to affordability checks, you can let to buy your existing residential.

So remortgage it to a buy to let mortgage, raise the money equity for the onward residential purchase.

That way your existing home would be considered "self funding" for affordability purposes.

 

[BUDFORCE]

There are still brokers with direct lines into underwriters and are still economical with truth - and I’m talking prime lenders.

Don't ever do this. Because those same brokers do get caught, and if you are found giving false information, with the intention of obtaining a mortgage by deception, you'll get loaded up to hunter, cifas, sira, and how ever many other fraud prevention databases that most lenders will subscribe to, and then, good luck ever getting a mortgage again.