Can you release equity from your property if your income source is from pensions and rental properties?
Posted on 26 July 2016
We have around £650,000 equity in our main home but only pension and rental income (rental income of £13,000 from separate property, value £160,000, mortgage remaining £60,000). We would like a loan against the equity to be repaid in 8 years’ time on sale of property. Funds would pay for home improvements , a deposit for our 25 year olds first time property purchase and to fund a property purchase in Spain. However our joint income is currently limited to pensions of £1,900 plus £1,100 rental income from another property. I believe we would pass affordability test because current cost of £150,000 mortgage (interest only) is only £80 per month (thanks to John Charcols recommendation many years ago), total outgoings £1,200.
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You are looking to release £200,000 for the main purpose of home improvements to your existing residential, part purchase a property in Spain in the future and provide a deposit for your children to buy their first property. You intend to repay the loan in approximately 8 years with the sale of your existing residential property. I am basing this on the assumption that the £3,000 figure is your monthly income equating to £36,000 per annum. Your main source of income received is your rental income and pension income, which may be sufficient for a lender to consider this type of transaction.
From the brief information you have provided, I believe that we may be able to help, however we would need more information such as full details of income and expenditure and when you plan to go ahead with the transaction.
It looks like you could get a remortgage to release equity from your current residential property or your existing buy to let property. The maximum you can raise on your buy to let property will be 80% loan to value equating to £68,000 ( £160,000 x 80% =£128,000- £60,000).However this will be dependent on the rental income you receive and you will need to supply tax returns and bank statements confirming this. Most lenders cap their income ratio to x4 income for residential lending, Therefore the maximum you are likely be able to release on the residential would be x4 of your total pension income. However there are some lenders on the market whom may be prepared to consider more based on your pension and rental income.
I would need also need to speak to your children to ascertain the purchase price of the property and details of their income and expenditure to support the mortgage. This will provide a more accurate picture of the amount required from your remortgage transaction.
I would recommend that you contact one of our brokers to discuss the options in more detail. Once we have a full profile of your circumstances we will have a clearer indication of which lenders to approach.
Answers provided in response to Ask the experts are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.
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