Use 1st house as collateral to buy 2nd house

R

Rezai

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Hello, I own my 1st house outright. The value is 285K. If I want to rent out this house and buy a 2nd house to live in for around 250K, do I need a 20% deposit for a mortgage or can I use the first house as collateral? Thanks.
 
I believe if you are not a 1st time buyer, which seems to be your case, then you will need a 20% deposit unless the bank grant an exception
 
Thanks Jim
jim said:
I believe if you are not a 1st time buyer, which seems to be your case, then you will need a 20% deposit unless the bank grant an exception
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Thanks Jim. So I can't use equity in my 1st house as a deposit for the 2nd house?
 
Equity is not cash

You could get a mortgage on your 1st house and use that as a deposit on the 2nd, no?
 
jpd said:
You could get a mortgage on your 1st house and use that as a deposit on the 2nd, no?
Click to expand...

I believe it can be tricky to get a bank to agree to releasing equity in that manner.

The bank providing the second mortgage will also want to see evidence of savings being built up over time.
 
If you had a mortgage before then you will need 20% deposit on the new house, I doubt the banks will budge on this. We're in a similar situation and in the process of mortagge approval. We had been approved in principle for an exception in Feb (LTI of 4.5x, we alread have >20% deposit), but the banks have all stopped issuing exceptions. However, the bank are considering future rental income of the property we own outright as part of our total income in the LTI calculation, which brings our approval amount closer to what we thought we would get with the exception.
With the current market I doubt we'll be buying or drawing down any time soon, but we figured it was worth continuing with the application and having it sorted just in case.
 
I think in these very strange times, you should be reducing your risk and certainly not increasing it.

Borrowing money to invest in anything is not a good idea. The potential downsides outweigh the upsides.

Brendan
 
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