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We live in the UK, and are seeking to move house and have seen a property which suits our requirements and has been discounted because the owners wish to sell quickly. The asking price is £400,000.

Our property has not sold - it's only just gone on the market at £370,000. But we are lucky enough to own it outright, mortgage free. We would be looking to sell it should we move, not to hold onto it.

In addition, we are fortunate to own another property, a flat, which is worth about £130,000 and from which we receive a modest rental income.

We can pay a 10% deposit on a mortgage for that £400,000, but our current salaries plus the rental income are insufficient to cover it.

I had, however, presumed the bank would take into account the fact we own a property outright when deciding whether we could be offered a mortgage. I did make clear that it would be temporary - that we would pay down the vast majority of it as soon as the house had sold - but it seems neither makes any difference.

Is there a financial product that will allow us to borrow the sum needed, taking our assets as collateral instead of our income when decided whether it is safe to lend us the money?

  • but it seems neither makes any difference. Primarily because there is no guarantee you will be able to sell the house or will get the asking price. Did you try asking the bank to get a mortgage on your existing property ? Or get in touch with a mortgage adviser, who might come up with some plans. – DumbCoder Jun 14 at 13:25
  • @DumbCoder I did leave this with a mortgage advisor, but they didn't seem very hopeful there was a solution. I appreciate that there is a risk for the bank here but it's minimal, and those things are, presumably, always an issue when deciding on a mortgage? – Matt Thrower Jun 14 at 13:30
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    Anecdotally, a mortgage agent that sees your current house is for sale, is not going to be excited about lending you money on it. Doing so would put them in a position of assuming risk and upfront effort/cost without the income stream that a loan like that would normally generate. There's no upside for them. – dwizum Jun 14 at 13:52
  • @dwizum Thanks. I did wonder if that was part of the issue here. – Matt Thrower Jun 14 at 13:57
  • In the end, per the answer I just posted, it sounds like debt to income is your issue, in terms of affording a loan big enough for the new house. In that case, it won't matter if the new house or the old house is the collateral, if you need an $X loan and don't have the cash flow to support payments on it, the collateral is irrelevant. – dwizum Jun 14 at 14:01
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Yes, you want to look for a "bridging loan", see eg more info here: https://www.moneysupermarket.com/loans/bridging-loans-guide/

Bridging loans are designed to help people complete the purchase of a property before selling their existing home by offering them short-term access to money at a high-rate of interest.

As well as helping home-movers when there is a gap between the sale and completion dates in a chain, this type of loan can also help someone planning to sell-on quickly after renovating a home or help someone buying at auction.

This is a way of borrowing in the short term in exactly this situation, although there are risks and downsides (relatively high interest rates, and potentially also high admin fees).

  • I've heard "bridge loan". Apparently it's a US-UK difference. – Acccumulation Jun 14 at 15:57
  • But will they use the same income:debt limit for a bridging loan as for a normal mortgage? – AndyT Jun 19 at 9:17
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Editing per Vicky's comment - this answer is based on a US perspective, and although it may not be literally applicable to the OP's situation, I'm going to leave it as-is in the hopes that it may help others in the future who find this question and are in the US.

You said,

We can pay a 10% deposit on a mortgage for that £400,000, but our current salaries plus the rental income are insufficient to cover it.

This makes it sound like the issue was your debt to income ratio wasn't sufficient to get the loan you were pursuing.

You asked,

Is there a financial product that will allow us to borrow the sum needed, taking our assets as collateral instead of our income when decided whether it is safe to lend us the money?

Generally, no. A lending decision like a mortgage or home equity loan is based off debt to income ratio (among other factors) because that's a good proxy for cash flow. Of course, the bank is concerned about collateral to secure the amount of the loan (i.e. that they'll be able to have a lien on the title for the home and the home's value is proportional to the loan amount), but they're also concerned about cash flow in order to ensure you're able to make payments. Holding a property worth £370k, on its own, does not imply that you'll be able to make monthly payments against a given loan, because that property's value isn't liquid or divisible enough to make monthly payments from.

As an alternative, you may wish to speak with your real estate agent about opportunities you may have to make an offer with your financial situation in mind. In the US at least, it's common to make offers contingent on other real estate deals - for instance, you could make an offer on the new house contingent on your old house selling for at least $X (where X is sufficient for you to pay cash for the new house). If the seller is motivated, they may accept this offer as a way to lock their sale in.

  • -1. This is a US-based answer which is not applicable in the UK. – Vicky Jun 14 at 14:13
  • +1. Contingent real-estate offers are not unheard of in Australia. It's worth trying in the OP's position. – Lawrence Jun 14 at 15:37
  • @Vicky fair point, I will edit to make that clear. Although it may not ultimately apply to the OP's situation in that sense, hopefully it may be useful to someone else down the road who finds this question via search and may be in the US. – dwizum Jun 14 at 15:50
  • +1 This answer is completely applicable in the UK too. As to your last paragraph: most houses sold in the UK are part of a chain, where one or more people are selling and buying at the same time. However, many vendors won't consider offers from people who haven't already accepted offers on their own house. And this doesn't help the OP anyway, as he is trying to buy quickly, i.e. before selling his house. – AndyT Jun 19 at 9:16
  • @AndyT sorry but I really disagree on the applicability of this answer to the UK. For example, "you may wish to speak with your real estate agent about opportunities you may have to make an offer with your financial situation in mind" - as a buyer in the UK, you don't have a "real estate agent", and the selling agent is working for the vendor so it would not be wise to disclose the details of your financial situation. – Vicky Jun 19 at 11:31

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