Can I borrow against a mortgage-free property to buy a property investment?

I like the OPs thought process i.e firstly assess can it be done theoretically, which is what they are seeking input on. Secondly, risk assess it.

I agree with others that your best option may be to sell 1 property and use net proceeds as two deposits. What is your current borrowing capacity? And i assume your appetite for additional borrowings is high? If so, fair enough.

Similar to @noelÓm im surprise there seems to be no Lender that would entertain additional borrowings without sellng given the logic and the prospective net position.

You havent commented on your overall financial picture. It may be the case that you max your pension and live very comfortably and may be able to afford this strategy but if not then I wouldd say tread carefully.
 
Am I missing something here ,you want to borrow 100% of money to fund a btl probably at 6% + apr,
What yield would you expect on Investment ,it seems 9-10 % is top of the market
If I were you I would hold fire until a least you have a sizeable deposit built up ,time is on your side
 
WHy keep property 2? It is just a cash flow producing asset. You want to use it to create leverage to buy another property. Selling it and using the cash to buy 2 properties with a mortgage (leverage), ends in the same result.

Is it really risky? if you came to this forum saying you had 200k cash and wanted to buy two properties, I don't think it would garner the same reaction.

I'm not here to say how risky it is, just suggesting the options you can use to achieve your goal. I will assume you have assessed the risk yourself.
 
Thanks for the discussion and info all, it is clearing things up, it seems I have 2 options.

Option 1 (Straightforward): Sell property 2, use the proceeds as down payments for purchasing a new property 2 and then a property 3.

Option 2 (Still not sure if possible): Find a lender who will allow me to leverage property 2 (through something like a mortgage, equity release or something else), then use these funds from property 2 as a down payment on property 3.

I would still prefer Option 2 so I can hold onto property 2, @DublinHead54 it is a nicer property and it is in a better location for me than what I would likely get if I had to replace it with a new property 2. As @jim and @noelÓm mentioned the net effect of both options are essentially the same. @jim my overall financial picture is pretty healthy, if I were to act or not on the type of thing being spoke about here and it worked out or didn't work out it wouldn't make or break me either way.

Any outstanding questions seem to therefore be around Option 2. Has anyone ever done this themselves? Or come across it being done? What type of lender might entertain this? Or any thoughts in general about this? I'm hoping that if what @Dr Strangelove said about Equity Release being impossible to get that there might be an alternative method to achieve option 2 like a traditional BTL mortgage on property 2 or something else/similar.
 
InfoSeeker_ said:
What I would really like to do is to keep hold of property 2 and then leverage it to buy property 3, rather than sell it and buy a new property 2, then a property 3.
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As with everyone else here, I think you are crazy to do this. A few years of seeing property prices rise, and people think that there is no risk in property. It is risky. And borrowing increases the risk.

However, here is a solution for you.

Find a friend who has €70k.
Sell him Property 2 for the market value. He can owe you the balance.
Now you have €70k - buy back Property 2 with your deposit of €70k + a loan of €130k.

You end up with €130k cash.

Downsides:
1) Stamp duty and legal fees on the two transactions.
2) You realise your Capital Gain on the sale and may have to pay CGT.

Brendan
 
InfoSeeker_ said:
I would still prefer Option 2 so I can hold onto property 2, @DublinHead54 it is a nicer property and it is in a better location for me than what I would likely get if I had to replace it with a new property 2.
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Take the emotion out of it, you should try and keep property 2 if it is yielding more than other properties you can buy. The niceness of the property shouldn't matter in a financial decision.
 
RedOnion said:
I've already given the name of the only 2 lenders that'll consider this.
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Dilosk and Finance Ireland, cheers! Just didn't realize you meant it originally under the scope of what I am now calling Option 2.

Credit Union was also mentioned to me too, I will check these out.
 
Brendan Burgess said:
As with everyone else here, I think you are crazy to do this. A few years of seeing property prices rise, and people think that there is no risk in property. It is risky. And borrowing increases the risk.

However, here is a solution for you.

Find a friend who has €70k.
Sell him Property 2 for the market value. He can owe you the balance.
Now you have €70k - buy back Property 2 with your deposit of €70k + a loan of €130k.

You end up with €130k cash.

Downsides:
1) Stamp duty and legal fees on the two transactions.
2) You realise your Capital Gain on the sale and may have to pay CGT.

Brendan
Click to expand...
Thanks Brendan, in the interest of exploring all potential options this is an interesting one, the part where I end up with 139k in cash is escaping me but it does seem like a potential workaround for going with Option 1 in my earlier message and still having property 2 in the end.
 
DublinHead54 said:
Take the emotion out of it, you should try and keep property 2 if it is yielding more than other properties you can buy. The niceness of the property shouldn't matter in a financial decision.
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True, but in this case despite the emotion and niceness of the property it is better from a returns point of view too so as you mentioned this is another reason to try keep it.
 
noelÓm said:
Are there really no lenders prepared to do this? Even though somebody will be prepared to offer 'new loans' on properties 3 and 4 that could easily result in OP having higher total leverage?
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They might be restricted by macro prudential measures set by Central Bank. OP would need to have 30% equity on a BTL property, which I assume is why he wishes to raise such equity from a top up loan on his PPR.

See https://www.centralbank.ie/docs/def...---published-10-may-2018.pdf?sfvrsn=3cdad1d_8 for plain English explanation and here for the official wordage on CB macroprudential measures. They don't specify anything about borrowings taken against a different property being used as collateral on an unrelated loan to be used to provide cash financing for new BTL mortgage. Even if you go to a different lender for the 2 loans, they surely will be wised up to what's really happening.

Part of the problem here I think is in the fact that the PPR has just 50% of equity against the existing mortgage. Assuming that you are going to spend around 250k on a 3rd property at a max LTV of 70% that would require a cash deposit of 75k. So assuming you are going to remortgage your existing home loan from 150k to 225k at a time when the typical market rate for a PPR mortgage, you also will be taking out a second mortgage to borrow 175k for the 3rd BTL.

So basically, without knowing you're exact current mortgage situation, you are planning to go from having 1 mortgage where you pay off 150k over X years to 2x mortgages of approximately 225k and 175k, assuming you buy a property worth 250k, over - I assume - a slightly longer term?

Just assuming that you've 20 years left on the PPR 150k term, and are on a rate of 4% (I don't know - I'm just trying to give a rough worked example of how a lender *might* see things).... you are looking to increase your borrowings from 150k to 2 mortgages of 225k and 175k each, but with a cash income from property 3. If you are buying a 250k property in North County Dublin (only because thats the only example I know) that hasn't been let you might get 2k pcm in rent, net roughly 1k after tax. So really you are talking about putting up your borrowing from 150k to around 350k for up to 24k extra pre tax income.

Here's where the problem starts - AIB to give one example is currently quoting 5.20% for standard variable on a BTL loan, with the alternative of an eye watering 7.3 to 8.1% on fixed rates for BTL.
The PPR re-mortgage would become a 75% LTV mortgage instead of the current 50%, meaning a standard variable rate of 3.95% at AIB or between 2.55-5.2% on fixed rate for up to 10 years.

I'm assuming your original value for PPR was lower than its current 300k value so you've a quite small repayment: if you paid 200k and borrowed 90% on a 30 year term at 4% variable rate you are probably paying around 860 per month.
If you are doing this 15 years into the term and wish to set up the new mortgage to run for 20 years, the new repayments would be roughly 1360 for the PPR and 1200 for the 3rd property. Thats an increase of 1700 per month, which you would need to be charging a rent of double that to finance after tax.

If I was a bank, I'd run. You *might* find a lender to facilitate this, but honestly, its going to cost you easily 500-700 extra per month to cover the additional mortgage repayments AFTER tax assuming you can get 2k per month on the proposed BTL property. I'd hazard a guess, unless you are already high net worth in terms of income, you'll struggle to find a lender to accept these terms
 
RedOnion said:
I've already given the name of the only 2 lenders that'll consider this.
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And actually, given my assumption that a standard lender *might* entertain this ruse, change the figures on my assumed case study from assumed rates of around 4% to 7-9% (FI also indicate a rate increase in 4 weeks time on top of rates that already go well over 8%). My suggestion of it costing 500-700 a month extra even after net rent after tax, could be far more.
 
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