Will banks lend me money on my share of co-owned house?

Question: I jointly own a house worth about €160,000 with my two siblings and wanted to know if I can use my share of the house as collateral for a bank loan of about €25,000.

I wonder if there are unseen complications with this approach. Would it be easier just to apply directly for a personal loan or a top-up on my own mortgage?

Mr JL, email.

Answer:

Technically, you can but you might well find that most lenders would be reluctant. From their perspective, what’s important is that they can get access to the security if necessary should a borrower default on a loan. And, naturally, security which has shared ownership – especially physical “assets” such as a property – can prove more difficult.

No bank wants to be in a position where they are having to countenance recourse to the courts to enforce a loan security. But it is not inconceivable that, should you not be able to meet repayments and the bank sought to call in the security – ie your share of the property – it could involve a forced sale which would almost inevitably be resisted by your co-owners.

Clearly, you’re comfortable that this would not happen – and there’s no reason to assume otherwise. But, from a risk perspective, part of the matrix for the lender is the security of recovering their money in adverse circumstances.

And it’s hard to object to that. After all, banks have quite rightly been beaten around the ears since the crash for their singular failure to assess risk properly (or at all) during the bubble years.

Additionally, if there is any mortgage outstanding on the property, whichever lender is involved will already have security on it. You cannot use the same asset as security on two different loans unless one of the lenders is prepared to accept they have second call on the security, and that’s not going to happen.

At the very least, any bank willing to lend on that basis would almost certainly require your siblings to co-sign or witness any agreement to head off the prospect of litigation. And even then, I think it’s unlikely.

Having said all that, there’s nothing to stop you approaching a bank to see if they would be open to the idea. I just would not be surprised if you were turned down in fairly short order, but the worst they can say is no.

I think you’ll find a bank would be more open to the idea of a personal loan, assuming your financial circumstances persuade them that you have the repayment capacity to pay back within the agreed term .

If that looks tight, you could also consider a mortgage top-up – assuming your existing mortgage provider is agreeable. There are a couple of things worth noting on that, however. First, although the headline interest rate on a mortgage loan is likely to be lower than a personal loan, the longer repayment period can still make the cost of the borrowings more expensive.

Second, you need to ensure that the bank does not use the fact of a mortgage top-up to change the terms – or interest rate applied – to your mortgage in a way that would disadvantage you.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice