Putting a mortgage on a cash-funded house

[nofuse22]

I am in the fortunate position of buying a new second home for cash. Initially i decided to go down the cash route as it was quicker (therefore helpful with the vendor) and i didnt need to mess around with a mortgage.

However given rates are so low i do plan on leveraging it post purchase. I assumed that this would be straightforward... however speaking to Nationwide today they said “What are you using the released funds for?”.. erm, things that earn more than 1.5% annum.

Unfortunately they said that this wasn’t sufficient justification. I asked them to explain why i could get a 70% mortgage pre purchase but not post purchase, and that their risk position / collateral was exactly the same. Sadly recourse to logic didnt make any progress

Has anyone on here taken a mortgage (at a decent LTV) on a cash purchased property? What lenders would you recommend?

Many thanks in advance!

[Sarnie]

The issue is that the reason for the mortgage funds has changed.

When you were buying the property you would have needed the mortgage to buy the property and could have held back your own funds to do what you will with.

Now you've bought the property and want to mortgage it, you need a reason to to provide the lender for the use of the funds.

No lender will mortgage the property for you to invest.

Almost all lenders will also require you have have owned the property for six months, some will be 12 months, before they will consider mortgaging it.

[Royal Jelly]

Sarnie said:

No lender will mortgage the property for you to invest.

Which is fair enough - their money, their rules.

Out of interest, what would be allowable reasons to mortgage an owned house? Renovations/divorce/buying another/change of use?

I have a house in the U.K. (I live abroad) which I don’t rent out. However, given the likelihood of not being back until next year, I’m considering using it as a holiday let - in which case I would think about putting a 50% or so mortgage on it.

How would would your all-seeing eye view the odds of that? It’s not really a concern if I can’t, but if a change of use as above would allow me to, I’d be interested to have a chat with you..

[dazmanultra]

Sarnie said:

No lender will mortgage the property for you to invest.

Are there other circumstances where they might? Barclays seemed quite happy to do this for me on the face of it - I didn't apply in the end because I decided against taking the risk but they seemed quite happy to release cash for further investment in additional properties/portfolio/my business.

[pb8g09]

Royal Jelly said:

Which is fair enough - their money, their rules.

Out of interest, what would be allowable reasons to mortgage an owned house? Renovations/divorce/buying another/change of use?

I have a house in the U.K. (I live abroad) which I don’t rent out. However, given the likelihood of not being back until next year, I’m considering using it as a holiday let - in which case I would think about putting a 50% or so mortgage on it.

How would would your all-seeing eye view the odds of that? It’s not really a concern if I can’t, but if a change of use as above would allow me to, I’d be interested to have a chat with you..

A couple I've experienced:

Renovations - In the past I've been told I have to show builder quotations as proof (which I thought was a p*sstake)
Car purchase - seems to be easier, my friend did this at the same time as I tried the above rationale and had greater ease

[Sarnie]

Royal Jelly said:

Which is fair enough - their money, their rules.

Out of interest, what would be allowable reasons to mortgage an owned house? Renovations/divorce/buying another/change of use?

I have a house in the U.K. (I live abroad) which I don’t rent out. However, given the likelihood of not being back until next year, I’m considering using it as a holiday let - in which case I would think about putting a 50% or so mortgage on it.

How would would your all-seeing eye view the odds of that? It’s not really a concern if I can’t, but if a change of use as above would allow me to, I’d be interested to have a chat with you..

All of those would be fine, expect them to do their due diligence and ask for evidence potentially. Eg if you wanted £200k for "an tension" expect them to potentially ask for architects drawings, planning permission and even builders quotes. Sometimes they don't ask for all of that but it depends on overall profile of the case.

[Sarnie]

dazmanultra said:

Are there other circumstances where they might? Barclays seemed quite happy to do this for me on the face of it - I didn't apply in the end because I decided against taking the risk but they seemed quite happy to release cash for further investment in additional properties/portfolio/my business.

Barclays won't do it for investment purposes. Eg "I want to drop £150k into a FTSE Tracker because it will return me more than the 1.5% you are going to charge me Mr Barclays". That would be a straight no.

If you are going to be buying another property, thats different, just expect them to ask you for details of the purchase property.

They won't release for you to inject into your business.

[Sarnie]

pb8g09 said:

A couple I've experienced:

Renovations - In the past I've been told I have to show builder quotations as proof (which I thought was a p*sstake)
Car purchase - seems to be easier, my friend did this at the same time as I tried the above rationale and had greater ease

Yep, as I've posted, lender will ask for evidence for renovations if it's a significant amount..........£20k for a kitchen is fine.......£200k for generic, unspecific "home improvements" is likely to have questions asked.

Car purchase is fine........I've raised £250k for a client to buy a Speciale before........

[SarlechS]

you'll find it difficult to get a mortgage on a house purchased outright with cash, not without a very good reason

when you buy a house on mortgage the lender has the first charge on the house should you default on payments, with you buying the house outright the lender has no insurance should you default on payments, its not really an attractive deal from a lenders pespective

[Sarnie]

SarlechS said:

you'll find it difficult to get a mortgage on a house purchased outright with cash, not without a very good reason

when you buy a house on mortgage the lender has the first charge on the house should you default on payments, with you buying the house outright the lender has no insurance should you default on payments, its not really an attractive deal from a lenders pespective

Ok, this post isn't really true in any way.

All lenders will lend against an unencumbered property in the right circumstances and for acceptable reasons.

Will they lend £200k to invest in stocks and shares, a month after a cash completion? No.

Will they lend £200k for a legitimate property extension six months after completion? Yes, no problem.

[SarlechS]

Sarnie said:

Ok, this post isn't really true in any way.

All lenders will lend against an unencumbered property in the right circumstances and for acceptable reasons.

Will they lend £200k to invest in stocks and shares, a month after a cash completion? No.

Will they lend £200k for a legitimate property extension six months after completion? Yes, no problem.

I think we are both singing from the same hymn sheet? i said lenders would lend with the right circumstances

i know when i tried to do this some years back it wasn't as easy as you are making out, not sure if things have changed or maybe i had the wrong broker

Edited by SarlechS on Wednesday 24th March 12:15

[was8v]

My dad lent my sister the cash to buy a house at auction.

She then mortgaged later to pay him back.

Did you borrow the money from someone to complete in a timeframe set by the vendor?

[Royal Jelly]

Sarnie said:

Royal Jelly said:

Which is fair enough - their money, their rules.

Out of interest, what would be allowable reasons to mortgage an owned house? Renovations/divorce/buying another/change of use?

I have a house in the U.K. (I live abroad) which I don’t rent out. However, given the likelihood of not being back until next year, I’m considering using it as a holiday let - in which case I would think about putting a 50% or so mortgage on it.

How would would your all-seeing eye view the odds of that? It’s not really a concern if I can’t, but if a change of use as above would allow me to, I’d be interested to have a chat with you..

All of those would be fine, expect them to do their due diligence and ask for evidence potentially. Eg if you wanted £200k for "an tension" expect them to potentially ask for architects drawings, planning permission and even builders quotes. Sometimes they don't ask for all of that but it depends on overall profile of the case.

Many thanks. In my instance, it’s more along the lines of if I’m going to be using the house as a money making venture, I may as well maximise total return - which a mortgage would aid.

Not sure I’d be quite as succinct with the lender. I may bend your ear if we go down that route, if you don’t mind.

[Sheepshanks]

SarlechS said:

you'll find it difficult to get a mortgage on a house purchased outright with cash, not without a very good reason

when you buy a house on mortgage the lender has the first charge on the house should you default on payments, with you buying the house outright the lender has no insurance should you default on payments, its not really an attractive deal from a lenders pespective

Surely that’s not correct - the lender will put a charge on the property, won’t they?

They’re not likely to lend at mortgage rates on an unsecured basis.

[Ziplobb]

SarlechS said:

you'll find it difficult to get a mortgage on a house purchased outright with cash, not without a very good reason

when you buy a house on mortgage the lender has the first charge on the house should you default on payments, with you buying the house outright the lender has no insurance should you default on payments, its not really an attractive deal from a lenders pespective

any lender wishing to lend someone money where the property is given as security will take a charge so they can get their money back in the event of non payment (ultimately) If the property is not charged, in other words it was bought for cash, then that charge will rank first.

[was8v]

was8v said:

My dad lent my sister the cash to buy a house at auction.

She then mortgaged later to pay him back.

Did you borrow the money from someone to complete in a timeframe set by the vendor?

P.S. They never did any kind of check up on that.

Also a few years back my dad mortgaged his own house (owned outright) to raise a deposit for me to buy my own house.

Do you have any dependants/cousins/nephews/brothers that you want to give/loan a deposit to?

[Fat hippo]

Expect the lender to ask for proof of purchase, or worse still, they will make payments direct to the recipient.

Few years ago I made a similar enquiry and the bank said if I was buying a car they would authorise the loan but would pay the car dealer directly.
Likewise, with buding work would pay builders directly

[Sarnie]

Fat hippo said:

Expect the lender to ask for proof of purchase, or worse still, they will make payments direct to the recipient.

Few years ago I made a similar enquiry and the bank said if I was buying a car they would authorise the loan but would pay the car dealer directly.
Likewise, with buding work would pay builders directly

I've never had a lender insist on doing that in nearly 20 years of transacting mortgages......

[Fat hippo]

Sarnie said:

I've never had a lender insist on doing that in nearly 20 years of transacting mortgages......

Happened to me when I was speaking to one of the lenders a few years ago.
Surprised me. Good to hear that its not commonplace.
Perhaps the mortgage advisors was being overzealous...

[Caddyshack]

TSB buy to let will let you do a let to buy - to buy an ongoing extra buy to let and they do not need you to have found the next property yet and will not delay completion waiting for the next one...you would need to check if they will do day 1 remo or wait 6 months or 1 yr.