Loan Structure

Hi,

A friend of mine is in the following situation:

Value of his home c€480k
Mortgage o/s c€200k
Equity c€280k

He earns approx €80k pa.

He wishes to purchase an investment property with a purchase price of about €550k with an expected monthly rental of c€1300.

Will he have to remortgage and put both properties in one loan or run it as 2 separate loans?

What options are open to him and what do you think is the best thing for him to do?

I'm asking cause I'm thinking of doing the same thing myself but different figures.


Thanks very much in advance

Your friend can remortgage his existing property to put down a deposit on a rental property, most banks will lend 75% to 80% of the new property price. He/she can also borrow up to 92% (or 95% in the case of BOS) on their family home. He/she will get a better deal with dealing with one lender, but the loans would be 2 seperate loans. He/she can if they wish borrow the stamp duty etc on his existing property. They should contact a good independent broker for further details and the best deals around, this type of thing is done on a regular basis, but a broker will be able to help and save time and money.

Best of Luck

www.keatingfinancial.com

Thanks for that Cathy k.

Is it true that it would have to be 2 loans with the one lender as another lender wouldn't take on a rip loan if another party, i.e. the bank that he remortgages with and get equity release from to partly fund the rip purchase, has an interest in the RIP property? Will a lender not demand if there is a shortfall after salary and rental are taken into a/c that the balance of funds comes from an unborrowed source such as a gift?

Also does anyone know how equity release is calculated?
Take the above emample:
Value 480k
mort 200k
equity 280k

Would BOS for eg give 92% of 480(house value) which you then deduct the current mortgage from OR would they calculate it on 92% of the 280k
(equity) which actually gives a higher figure than the first option?

Thanks again in advance

Hi,

Any equity release is based on the value of the property as it stands i.e. 480 k - bank of scotland will lend up to 95% of this,

to answer your other question, there is nothing to stop you having a different lender for your private home and investment, however the bank would be more in favour of giving a loan for investment if they have the private home, also if there is a shortfall they will look at the bigger picture. (that they are getting both loans) Also an advantage of using one lender is, that in some circumstances the lender will take income for the private home and rental income for the investment as long as the rental is approx 1.4 times the interest only amount. if there is a shortfall then the lender will take the whole package into account.

I hope this helps

Cheers for that Cathly.

I think your friend is crazy to consider doing this. A property which costs 550K and only 1300 per month rental? On these figures alone the yield is approx. 2.8%. Your friend will have to borrow to pay stamp duty. He'll then have legal fees, insurance and the cost of outfitting the place!!