Releasing equity from a house with no mortgage

mary.beirne85

mary.beirne85

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Hello,

We are second time buyers looking to buy another house. Our current house is valued approx. 400K. We would like to buy a larger house (600-800K) as we have a new baby on the way and our current home is not suitable.

We own our current home outright (no mortgage). Ideally we could sell our current home and buy the new house, but we are aware of the challenges of doing so at the same time.

Given than we own the house outright, we were wondering what options we might have.

Is it possible to release equity from our current house or use it as collateral for the new mortgage? Do we have any other options?

Thanks so much.

Kind regards,
Mary
 
I presume you don't have 10% of the purchase price of the new house, i.e. €80k.

If you do have, you might get a mortgage for the rest and then you can sell your own home. You would need a combined salary of about €200k but the lender might make an exception.

But otherwise, you have to put your house on the market and start looking for a new home at the same time and just hope it works out.

Brendan
 
Thanks for getting back Brendan.

We have about 170K saved for a deposit and our combined salaries are approx 200K. However, we are not saving enough each month to satisfy the shocked affordability checks (i.e. interest rate + 2% shock). This is the reason we were hoping to release equity on our current home, to reduce the amount we would need to borrow.

Do you think it is feasible to release equity in our current home to help with this situation?
 
If you release equity now, you won't realise as much from your current home when you sell since there'll be a debt to repay. Won't you have to borrow a larger amount for the new house in that case? It could leave you back where you started?
 
mary.beirne85 said:
This is the reason we were hoping to release equity on our current home, to reduce the amount we would need to borrow.
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Releasing equity means taking out a mortgage. Either way you will still have the same total borrowings between the 2 properties.

You need at least €630k (€800k-€170k) if you go to the top of your budget. Whether that is split across 2 mortgages is largely irrelevant.

mary.beirne85 said:
However, we are not saving enough each month to satisfy the shocked affordability checks (i.e. interest rate + 2% shock)
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This is a red flag, your salary and savings suggest you should easily meet most requirements. Either you have a lot of other personal debt or some other kind of financial commitments?

You might be better off doing a Moneymakover and providing more detail
 
mary.beirne85 said:
we are not saving enough each month to satisfy the shocked affordability checks (i.e. interest rate + 2% shock).
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I am surprised that with €170k , your bank would not lend you €630k to buy an €800k house. Especially, when you plan to sell your own house and reduce the mortgage to €230k.

Brendan
 
Something isn’t right here.

Have you spoken to a broker or are you just getting the cold shoulder from your own bank?

With salaries of €200k and a requirement for only €630k, it should be plain sailing.

What about factoring in rent on the existing home? Then just sell it anyway. Surely it would, in theory, throw off circa €20k a year of rent. Throw that into the mix, then change your mind and sell it.

It’d be a crazy world where you can’t get a mortgage based on those numbers.
 
mary.beirne85 said:
We own our current home outright (no mortgage). Ideally we could sell our current home and buy the new house, but we are aware of the challenges of doing so at the same time.
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Going sale agreed and new home and putting own home on market immediately is one way to do it. It has its challenges but it can go right

Worst case you'll be paying for storage/accommodation for a few months which has its costs....but so does leaving a property idle while you're already paying for another one.

mary.beirne85 said:
We have about 170K saved for a deposit and our combined salaries are approx 200K. However, we are not saving enough each month to satisfy the shocked affordability checks (i.e. interest rate + 2% shock). This is the reason we were hoping to release equity on our current home, to reduce the amount we would need to borrow.
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Seems odd that you won't get approved on a 3.15x LTI.
 
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