I recently arranged a buy to let mortgage with gifted equity for a client.
My client in this case was a woman who was looking to expand her buy to let portfolio. She already owned two properties, which she was renting out. Her parents were moving abroad and she was planning to buy their house from them, which was to become her third buy to let property.
She was purchasing the property at market value, at a price of £575,000, but the equity in the property was being gifted by her parents. This meant she didn’t have to put down a physical deposit.
There were a couple of hurdles. There are inherent difficulties in trying to secure a buy to let mortgage with gifted equity; and in this instance her personal circumstances made the case a little more complex.
Firstly, it is harder to persuade a lender to accept gifted equity on a buy to let, as they generally feel less comfortable with it. Secondly, although she owned two properties, she didn’t actually own her current residence. That property belonged to her partner, and she was therefore deemed a non-owner occupier. It is very difficult to secure a buy to let mortgage from this position.
The fact that she already had some concrete experience as a landlord helped. Also helpful was the fact that her parents were emigrating and were thus clearly not going to be the tenants of their old property.
I wanted to secure her the loan she needed at a good loan to value to enable her to buy the property. I was confident that we would be able to find a buy to let lender who would be happy to issue the loan on the basis that the gifted equity was coming from a close relative.
A small building society offered her a discounted variable rate at 4.19%, with which she was very happy. Now that she owns the property, we have plans to restructure the mortgage in the future in order to secure her a better rate.