Parents supported me, but looking to upsize!

Moneyextra-Matt · 23 March 2018 at 1:31PM

Hey guys,

I really need some advice, as i'm new to mortgages!

I've very fortunate to have parents who have been able to help me get onto the property ladder a few years ago. As they get much better interest rates (1%), they kindly offered that for around 5 years, they'd lend me the money to purchase the apartment and I only pay them back the interest on their mortgage repayments (£140 p/m). The theory behind this, is that i'd be able to save as much as I possibly can to put towards a deposit.

In Jan 2016 I purchased the one bedroom apartment for £140k. Since then it's increased to £170k and i'm looking at selling and moving into something a little bigger with more bedrooms.
My plan was to use the £170k as a deposit on my next property, and then in Jan 2021 when my parents need their money back, i'd remortgage.

Here's where I need your help;

If I see a property for £285k, then I won't have an issue getting a £115k mortgage on my own.
However, come Jan 2021 (this isn't a requirement, and they'd be happy to extend if needed) when my parents want their money back, i'm going to need to remortgage with my girlfriend. Together we'll have saved up roughly £70k savings and according to Halifax (based on our existing salaries but likely to increase between now then) we could borrow up to £308k.

Am I working things our slightly wrong, or am I worrying about nothing? I just want to make sure that i'm able to pay my parents their £140k back & don't end up in a pickle.

Thanks
Matt

davidmcn · 23 March 2018 at 1:50PM

Most lenders won't be happy with your deposit being a loan from your parents.

Not clear how your current place is owned - you say you own it, but also refer to your parents' mortgage payments?

Okydoky25 · 23 March 2018 at 2:28PM

Where are you getting £170k as a deposit?

If you purchased at £140k and it is now worth £170k you equity for a deposit is only the difference which is £30k plus what ever you have paid off your mortgage however it sounds like it is on an interest not repayment mortgage?

Unless you mean your parents will still let you have the £140k plus the £30k equity?

Moneyextra-Matt · 23 March 2018 at 3:17PM

Thanks for your help guys.

I own the apartment. My name's on the deeds, however my dad paid for it. I just give him the minimum repayment required.

Yes - that's right Okydoky25, they'll still let me keep the £140k + £30k equity until Jan 2021. At which time, i'll need to pay them £140k back, and mortgage the entire property myself.

Thanks
Matt

pinklady21 · 23 March 2018 at 3:21PM

Is your parent's mortgage secured over the flat? If so, that loan will have to be repaid when the flat is sold, leaving only the remaining equity as a deposit for the next house.

Moneyextra-Matt · 23 March 2018 at 3:37PM

It's not secured against the flat

ChopperST · 23 March 2018 at 4:10PM

Moneyextra-Matt wrote: »

It's not secured against the flat

Maybe stop being so cryptic Matt.

Reading between the lines - did your parents borrow against their own property to buy your flat for you and you pay their mortgage (interest only?).

If you sell the flat do you have repay the loan to your parents and they are happy for you to keep the appreciated equity in the flat?

John-K_3 · 23 March 2018 at 7:15PM

You say that you will not have a problem buying the property, but you may well struggle given how much of your deposit is borrowed.

You will also be significantly extending yourself. A lost job, a period of illness, or splitting up and you may well be unable to pay your parents back.

Would it. It make sense for you at this point to work out how to get a house that you can afford without your parents money?

enthusiasticsaver · 23 March 2018 at 7:39PM

Your parents did what we presumably did which was borrow against their mortgage free property to buy a flat for our daughter to live in as it was cheaper to buy rather than rent. In our case though we bought in our name rather than hers but we gave her the profit when we sold and she benefitted from much lower rent.

I don't think it will matter that your parents loaned you the money to buy the flat as it was bought in your name. All a bank or building society will see is that it is mortgage free. They are not going to go into the ins and outs of how you bought it in the first place unless your parents have a registered interest in it or a charge on it.

If you buy the new property at £285k then as you say you will need the £115k mortgage. Is your girlfriend going to be buying the new property with you?

If you intend saving £70k over the next 3 years then you will need to remortgage to give them £70k back and the only thing I am not sure of is whether gifting money to your parents is going to be something that will be agreed as a reason for remortgage. Another option is that you get a mortgage for £185k and give your parents £70k back when your flat is sold and then pay them the remaining £70k over the next 3 years. That seems quite a high amount to save though and it leaves you vulnerable should you get ill or lose your job. Would your parents be happy to wait or are they depending on getting the money back definitely in 2021?

getmore4less · 24 March 2018 at 9:27AM

Parents need to be declaring the money you pay them as interest.

1% on £140k is £117pm

You could just start paying them back now and build up your own equity that way.

enthusiasticsaver · 24 March 2018 at 11:11AM

getmore4less wrote: »

Parents need to be declaring the money you pay them as interest.

1% on £140k is £117pm

You could just start paying them back now and build up your own equity that way.

He is repaying a loan or technically a gift as there is no loan agreement so who would he declare that to? His parents are not receiving interest as such.

Parents supported me, but looking to upsize!

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