Complicated mortgage situation: would a broker be able to help?

Ali_Hale · 12 October 2016 at 11:17AM

Hi folks,

Bit of a complex situation here, bear with me!

Here's how it stands:

1. My husband and I own a home, with an interest-free loan from my (very kind) father. We've never had a mortgage at all before so feel a bit clueless.

2. Due to a move from South to North, we have a chunk of money in the bank; enough to comfortably afford a £30,000 deposit.

3. We would be looking to buy somewhere around £120,000, so our deposit would be 25%.

4. Close friends of ours, a married couple, are currently council tenants. They want to move to live nearer us, but there is very little council housing in our area.

5. We have been thinking of purchasing a property to let out at some point in the next 5 years: we would now like to be able to purchase and let to our friends.

6. Our friends would pay us rent at market rate.

7. We want a repayments mortgage (not interest-only), so not a standard buy-to-let mortgage.

8. I have been self-employed for the past eight years. I was making around £21,000 year (pre tax, post expenses) but have had long periods away due to two lots of maternity leave in the past 4 years, and more recently, being the primary childcarer. My income has dropped significantly -- £12,000 in 2013/14, £11,000 in 2014/15. Around £6,000 in 15/16.

From January 2017, my working hours will increase significantly, and there's no reason why I shouldn't be up to £21,000 again by tax year 17/18.

9. My husband is in his second year of a three-year PhD, and has a tax-free grant of approx £14,000/year.

10. We receive a regular gift from my parents of £500/month (my dad is keen to get rid of it before he dies -- hopefully a long way off..!!)

11. In case it wasn't clear from 6, we have two young dependents.

Sorry for such a long post! Basically, we feel confident we can take on a mortgage and that (if needed) we could cover the mortgage for a few months if our friends defaulted. Even with the £30,000 deposit, we'd have savings in the bank.

But we're not sure whether lenders would be cautious about lending to us, due to our joint income being low, having young children (& childcare costs) etc.

Would a broker be able to help us figure out a mortgage, or is this too weird a set of circumstances..? Presumably they see weirder?!

Thanks for any help or suggestions!

Thrugelmir · 12 October 2016 at 11:31AM

You need to simplify your plans as far too muddled and complex. Before considering a mortgage of any kind you need to reestablish your self employed income back to a reasonable level. Moving from south to north will result in you having no track record either as a business. As in essence are starting from ground zero.

You don't say what is happening to your existing property.

muhandis · 12 October 2016 at 11:56AM

I would recommend talking to a broker, they see all sorts of situations. They will filter out the information that does not impact the lender's assessment and give you an idea of whether you can borrow the amount that you are looking for based on ALL the aspects of your particular financial circumstances.

Worst case scenario, if a mortgage isn't feasible at this point in time, the advisor can recommend what it is that you need to do to get to a point where you can get a mortgage, no harm done.

Good luck.

Ali_Hale wrote: »

Would a broker be able to help us figure out a mortgage, or is this too weird a set of circumstances..? Presumably they see weirder?!

Thanks for any help or suggestions!

SavingSteve · 12 October 2016 at 12:03PM

Agree with Muhandis.

The only other comment is that you are proposing entering into a Buy to Let business. Key word here is business. It comes with lots of responsibilities and risks. If you're putting your money into this investment are you sure the house that suits your friends needs is the best for you as a business venture? Could you get better returns on your money elsewhere / a different property? Seeing as you're charging your friends market rate rent then they could rent from anyone to move to your area, you do not have to tie your investment to their renting. You are linking two things that don't have to be linked.

On a personal level this also sounds like a sure fire way to ruin a friendship. Keep your business ventures separate from friendship would be my advice.

Ali_Hale · 12 October 2016 at 12:15PM

Thrugelmir wrote: »

You need to simplify your plans as far too muddled and complex. Before considering a mortgage of any kind you need to reestablish your self employed income back to a reasonable level. Moving from south to north will result in you having no track record either as a business. As in essence are starting from ground zero.

I'm a freelance writer, so where I live makes almost no difference -- I perhaps should have made that clear! (Many of my clients are in the US.)

Thrugelmir wrote: »

You don't say what is happening to your existing property.

I should have been clearer: nothing's changing about the existing property. We will continue to own and live in it.

Ali_Hale · 12 October 2016 at 12:19PM

Big thanks to Steve and Muhandis for the advice, much appreciated. :-)

SavingSteve wrote: »

Agree with Muhandis.

On a personal level this also sounds like a sure fire way to ruin a friendship. Keep your business ventures separate from friendship would be my advice.

This is our main concern, and has given us serious pause for thought over the past few days. They are like family to us (though not technically related) and they have had some difficult times and now have a poor credit rating. They would probably struggle to rent privately.

We haven't actually proposed this option to them yet -- seeing them on Friday -- and I'm trying to establish whether it's even possible, and what our first steps (probably, visiting a broker) would be if so.

Bonfire_Bride · 12 October 2016 at 12:19PM

Id be very wary about renting to friends.

Edited to say - sorry, I can you have already thought about this. Money and friendships just do not mix.

Thrugelmir · 12 October 2016 at 12:58PM

Ali_Hale wrote: »

I should have been clearer: nothing's changing about the existing property. We will continue to own and live in it.

Ah ok.

Then your biggest challenge is going to be the nature of your employment and your income. Speak to a mortgage broker. They'll be best placed to guide you through the maze.

Pixie5740 · 12 October 2016 at 1:36PM

Read Tenancies in England & Wales: A Guide for Landlord and Tenants. There's even a section specifically for New Landlords.

A low credit score wouldn't prevent your friends from renting somewhere. Nobody can see never mind uses the credit scores generated by the credit reference agencies. The score are just a marketing tool to encourage suckers to part with their money to buy credit score improving services which themselves are a load of horseshit. When a landlord credit checks a prospective tenant all they can see is the information held on the public records; bankruptcy, CCJs, insolvency. That is if your friends want to give up a secure council tenancy to go and rent in the private sector.

getmore4less · 12 October 2016 at 3:54PM

Landlord+ tenant does not equal landlord+friend.

Will you chuck them out when they can't pay?

Ali_Hale · 12 October 2016 at 4:07PM

getmore4less wrote: »

Landlord+ tenant does not equal landlord+friend.

Will you chuck them out when they can't pay?

Nope.

I do appreciate everyone's warnings about renting to friends. This is *one* option we're exploring.

Complicated mortgage situation: would a broker be able to help?

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