Equity release possible?

S

SarahD12

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I was hoping to get some advice. In 2011 I inherited a house that I now jointly own with my brother and sister. The property is worth approx. €1 million and has no outstanding mortgage on it. We rent it out as a buy to let property and do not wish to sell it in the foreseeable future.

I own my own house with my husband, which is worth approx. €450,000. We have an outstanding mortgage on this property of €400,000.

We would like to move house, but need some more money to put towards a despot. Would it be possible for me to release equity of approx. €80,000 from the property I own with my brother and sister, to put towards this deposit?

Any advice would be greatly appreciated.
 
Highly unlikely I imagine as if you need to borrow against the inherited house then all 3 owners will have to be on the mortgage, even if they were agreeable I still think it unlikely a bank would lend, it's too messy. Are any of them in a position to buy you out?
 
I think it would be unlikely that anyone would allow you to release equity on the jointly held property. If they did, I think it would have to be in all three names, which your siblings might not like.

You probably don't want to hear this. But you should sell the house and use the proceeds to pay down your mortgage.

If you want to hold on to it for semimental reasons, then maybe your brother and sister could buy out your share.

@Monbretia - Snap!
 
Banks won't release equity on one property so someone can buy another property with it. It wasn't too long ago that people were releasing as much equity as they could on their own homes to buy apartments all over the place and we know how that ended up.

I would echo with what Brendan said, broach the subject of selling the inherited house. Having €380,000 in cash will probably mean a fairly small mortgage. Sentiment doesn't pay the bills and in a lot of cases, costs people a lot of money.


Steven
www.bluewaterfp.ie
 
+1

Also likely to be more cashflow and tax efficient to sell the jointly owned house or your share to your siblings (unless you want to take a position on future house price increases). As there is no mortgage on the BTL then most of the rent is taxable. Yet your own PPR mortgage interest is paid out of after tax income.

Financially speaking, it would make more sense to sell (your share at least) of the BTL, use that you pay down your own PPR and then (only if you wanted) take out a separate mortgage to buy a new BTL that you own. In that case your own PPR mortgage would be paid down significantly and the mortgage on the new BTL would be tax relieved. You need to run the numbers, depends on the interest rate of your own PPR as regards whether your share of the net interest from the jointly owned BTL is higher than the interest on your own PPR mortgage (other considerations also, CGT rate, etc).

From personal experience I would advocate against an individual entering the BTL market with borrowed money anymore, the numbers simply don't work (despite all the talk of high rents - tax eats up most of the higher rent anyway plus plenty of other charges). For those who own existing BTLs with mortgages, it more complicated. A case of whichever is least costly - continue renting and subsiding, or sell and walk away, paying the mortgage (and any negative equity that might exist).

I ran simple numbers on your scenario and it appears that you would be several thousand better off by selling the BTL (or your share) and using the proceeds to pay down your own PPR. Depending on the interest rate of the PPR mortgage the savings could be 3-6k per year. (I assumed 2,500 rent on the existing BTL, 9 months rent after outlay before mort, int rates of 3-4.5%). Can you provide more accurate numbers - int rates on BTL and PPR, rent on BTL, have you a long term tenant or does it change every few years? What is the annual cost of maintain the BTL, all costs, on average?

The only scenario financially that I can see where it might make sense to hold the existing BTL is if BOTH the BTL and your own PPR are on low tracker rates.

There are likely a whole series of other non financial matters which correctly also need to be taken into account.
 
Many thanks for all your replies.

The situation is complicated greatly because we have a former rent controlled elderly tenant living in the house we inherited (this is effectively a sitting tenant who has a right to tenancy until she dies). The property has been valued at €1 million with the tenant in situ, and €1.5- €1.8 without.

We intend to sell as soon as we have full vacant possession, but this could be quite a number of years. Selling up now would mean losing out on this future gain, so I am just trying to figure out if there is any way that I can release some equity, in any way, shape or form, from the house, without selling.
 
Sarah, that's pretty fundamental information which perhaps might have been better to have provided upfront. As always there are non financial objectives which are much more important!

Don't see a lot of options really, unless you sell to your brother/sister at a discount. Doubt a bank would lend here.

I would not be blinded completely by the apparent loss of 500k divided by 3 people, less capital gains could be around 100 grand each, maybe slightly more. So it would not be a disaster to sell, though it would feel that way if the tenant passed away soon of course.

Can you sit and wait or is the desire to move so strong that you want to do so? Who is the elderly tenant, what relationship, age, health, etc. Any alternatives? Are you/could it be deemed that the existing tenant is inconvenient, ills being wished, etc?

Depending on your brother and sisters own financial positions, would they be able (prepared) to make available the 80 grand if the ownership of the house was changed.

eg. 80K divided by 1 million = 8% of the house valuation with the tenant. Could they give you 40 each for example and you transfer 4-5% of your ownership to them? They get the upside in terms of a higher price in the future, and you get your money. Or could one do for 8-10% and the 80 grand? Don't think you could use the higher valuation as they are taking risks, though may be useful to build in some conditions that if the tenant passed away in a very short period of time that you get some of the upside. (eg a notional interest rate cap is built into the money they give you now).

Though could get messy with siblings, lots can go wrong, emotions, jealousy potentially down the line, etc. You would all have to agree to terms and conditions, etc. Wouldn't write it off depending on the various financial positions, but could be bothersome all the same. Out of the box thinking required.
 
Thanks Gerard. Apologies, I was trying to keep my question simple without going in to too much detail (which as you point out is probably needed to get a full answer on what is a complicated situation).

We’ve looked at the option of either sibling buying one quarter of my stake in the house at a value of €83,000. Both are married, own their own home and are in full time employment. They both live outside the country however, in the UK and Spain. Neither has the funds to purchase upfront and the banks have refused a BTL loan (BOI refused last week, other banks said over the phone that it would not be possible). It is surprising, as the income from the house, for each of us, is €21,000 per annum before tax.

I agree when you say that out of the box thinking is needed here- at this stage though I’m starting to feel like I’ve explored nearly avenue and I keep running in to dead ends!
 
Hi Sarah

A bit of good and a bit of bad news for you. Pepper mortgage will do equity release. Bad news is the joint ownership of the property will make it difficult to get the equity release over the line. If you release equity on the property, your brother and sister will be 100% liable for your debt. So if you ever defaulted, they will be liable for the debt. If they wanted a mortgage, it will be a debt that they will have to declare so they won't be able to get as much for themselves as they are carrying your debt.

Any equity release will also be subject to Central Bank rules so you won't be able to exceed the 3.5 times salary rule.


Steven
www.bluewaterfp.ie
 
With respect Steven, I would not advise that as a credible option at all in these circumstances. Though understand you simply passing info along.
 
Sarah - you could sit tight and upgrade in the future, sometimes doing nothing is the right answer. As long as the BTL is held and sold around the same time that you buy, you are not overly exposed to price increase (unless you buy a mansion type!). ie your future house may cost more than today but so also will the BTL increase in value in all likelihood. Your own PPR will also likely increase at around the same rate so there is an upside there also. Depends on your accommodation needs, etc.
 
Gerard123 said:
With respect Steven, I would not advise that as a credible option at all in these circumstances. Though understand you simply passing info along.
Click to expand...

What, potentially lumbering her brother and sister with her personal debt? :rolleyes:

It certainly isn't a credible option for the brother and sister! And I think it would be unfair to ask them to do so.


Steven
www.bluewaterfp.ie
 
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