Lending against Equity

Posted on 16 March 2011 by Julie Daniels


Our house has been valued at £900,000. We have a mortgage of £80,000. We want to sell and buy a cheaper property of, say £600,000. We want to buy a holiday-let cottage value approx £280,000. We would rent it out year-round. In the area we're looking (Cornwall), we can expect to earn around £12-15,000 in rent per year.

Problem is, there isn't much income coming in at the moment. I have recently taken redundancy and have started my own business. My husband is bringing in very little.

We would like to put down £150,000 deposit capital from the sale of our house (after paying off mortgage), leaving around £130,000 to raise for the holiday let property.

Could we borrow that against the value of our new home - without income being a factor?

Julie,

In short the answer is no. Lending in the UK is tightly regulated and all Banks and Building Societies have a duty to check the affordability of any mortgage they offer. With no income they can not do this.

There are Lenders who will consider Holiday Lets, but they will all require a deposit to be put down. It may be possible for you to borrow this against your existing property, this will depend on exactly how much income you do have coming in. I would explore this with your existing Lender and then decide whether or not it is feasible to go ahead and source a mortgage for the property in Cornwall. This second mortgage would have to be based on the projected rental income.

Peter

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