Is it possible to release money that we have in our current house and use it as a deposit for a new home? Mortgages | Mortgages

Q My wife and I would love to purchase a second house to live in, while still renting our current home. My sister is desperate and needs somewhere she can live with her son. Were we able to free some of our money in our current house to make a deposit on a brand new home? We have about £60,000 of equity at the moment and my partner and I have secure jobs. I would also love to swap our mortgage on the first property for a buy-to -let mortgage. I understand that my sister would have to pay the market rate for rent. Is this possible? We would love to help our sister.
AR

A Yes, it is possible but what you can’t do is convert your residential mortgage to a standard buy-to-let mortgage in this case. Instead, you have to take out a “regulated” buy-to-let mortgage, which is also known as a family mortgage. According to Pete Mugleston, a mortgage adviser at onlinemortgageadvisor.co.uk: “This is a specialist mortgage that allows a borrower to rent out the entirety of their property – or more than 40% – to a close relative.” Close family member means a child, sibling, parent or grandparent but not cousins, second cousins or aunts and uncles.

Only a few lenders offer regulated buy to let mortgages, and Mugleston states that their requirements are more stringent. It may surprise you to learn that you would not have to charge your sister the market rate of rent as “lenders are aware of the possibility that families may not charge one another as much in rent and could be more inclined to let missed payments slide”, Mugleston adds. Instead, lenders will require a deposit greater than 25% (as with most buy-to–let mortgages). They also base the amount of money they are willing to lend on your personal income, rather than any potential rental income.

Before you can apply for this kind of mortgage, you have to have a particular close family member in mind – which clearly you do – and that family member has to agree to the arrangement. If it turns out that your sister doesn’t want to be helped in this way, there’s not much you can do. But even if she does, whether it’s a real possibility depends on the state of the rest of your finances.