Can I borrow money on my home to use as a deposit to purchase a buy to let property?
Normally this is possible providing that there is sufficient equity in your property and your chosen lender agrees with the use of the funds.
Most buy to let mortgage lenders will accept a deposit raised in this way, provided that in doing so the borrower does not end up financially overcommitted.
To qualify for a buy to let mortgage you will need a deposit of between 15% and 40% with the least expensive products being down at 60% loan to value (LTV) and a very few expensive products being available at 85% LTV.
There are three ways to raise a buy to let deposit on your main home:
- ask your existing lender for a further advance on your mortgage
- consider re-mortgaging to a new lender, whilst raising some deposit capital
- look at the possibility of a second charge
The capital raising route chosen depends on many factors, not least the overall cost which may involve the payment of Early Repayment Charges (ERCs) on the existing loan.
Are there any Buy to Let Lenders that will take the full amount of gifted equity as a deposit?
The simple answer is that it depends on who is making the gift and why?
The majority of lenders give a blanket rejection to any gifted equity situation, however there are a few buy to let lenders that will allow 100% of the value if the equity is gifted from close family. The lenders that will allow a property to be purchased undervalue from close family and used as a buy to let investment property will want to ensure three very important points concerning the donor of the equity:
- that a situation which could be construed as a deliberate deprivation of assets does not exist
- that Money Laundering Requirements can be met in full
- the property was not the main residence of the donor
In protecting itself against a deliberate deprivation asset situation, the lender would want to carry out a Bankruptcy Search against the donor. In addition it is highly likely that the lender would require an indemnity insurance to be put in place to protect it against a Trustee in Bankruptcy petitioning a court for reversal of the gift on the basis of prior knowledge of an impending Bankruptcy.
This type of Indemnity Insurance can be organised through a purchaser’s Solicitor at minimal cost.
How does it work?
So Mum wants to give her sons some of their hard earned inheritance whilst she is still alive, perhaps as part of some clever Tax planning exercise? Property’s open-market value is 650K, and they purchase from her at 350K.
Buy to Let lenders would normally work off the purchase price or value; whichever is lower.
In a gifted equity case this position is in effect reversed and the lender works off the value and not the purchase price. If the applicants, the property and the rental cover are satisfactory, a buy to let loan should be forthcoming.
Top Tip: In order to avoid disappointment, speak to an Independent Mortgage Broker in order to find out if all of the considerations fit the limited number of lenders criteria.
My Buy to Let re-mortgage application has failed, the lender citing “consumer buy to let”; what is a Consumer Buy to Let?
Good question, first time that it has been asked!
This is a new and somewhat tedious concept introduced in UK legislation in March 2016 as a result of an EU directive.
It is a buy to let mortgage “not entered into by the borrower wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower”.
It’s meant to cover customers that become buy to let “accidental landlords”; if such a thing could actually exist!!
Situations where perhaps someone inherits a share in a property and re-mortgages it with a Buy to Let mortgage in order to purchase the equity of the co-inheritors. The Let to Buy situation is another example.
In our view neither could be “accidental”, however these CBTL’s need to be reported, but do very little for a consumer………..except reduce the number of buy to let lenders available to accept your case.
We are guessing that in your case, you once lived in the property which regardless of how many years that you have owned it, makes it a Consumer Buy to Let. Many of the buy to let lenders have chosen not to offer Consumer Buy to Let mortgages, for no good reason that we can see.
Although you would not have stated on the form that it was a CBTL, your answers to particular questions on the application form would have indicated to the lender that the property should be classed as a Consumer Buy to Let. The lender that you chose was one of many that do not accept Consumer Buy to Let cases.
Top Tip: Consumer Buy to Let mortgages need careful placing, so best use the services of a good Independent Mortgage Broker that will know the right questions to ask.
We have many years experience arranging buy to let mortgages. Please continue to view our buy to let mortgage service or call us on 0800 316 5756 to discuss your ideas.