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  • FIRST POST
    • Ali Hale
    • By Ali Hale 12th Oct 16, 11:17 AM
    • 12Posts
    • 6Thanks
    Ali Hale
    Complicated mortgage situation: would a broker be able to help?
    • #1
    • 12th Oct 16, 11:17 AM
    Complicated mortgage situation: would a broker be able to help? 12th Oct 16 at 11:17 AM
    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!
    _________________________________________
    Ali Hale
Page 1
    • Thrugelmir
    • By Thrugelmir 12th Oct 16, 11:31 AM
    • 51,268 Posts
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    Thrugelmir
    • #2
    • 12th Oct 16, 11:31 AM
    • #2
    • 12th Oct 16, 11:31 AM
    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.
    “A man is rich who lives upon what he has. A man is poor who lives upon what is coming. A prudent man lives within his income, and saves against ‘a rainy day’.”
    • muhandis
    • By muhandis 12th Oct 16, 11:56 AM
    • 221 Posts
    • 82 Thanks
    muhandis
    • #3
    • 12th Oct 16, 11:56 AM
    • #3
    • 12th Oct 16, 11:56 AM
    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.

    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!
    Originally posted by Ali Hale
    • SavingSteve
    • By SavingSteve 12th Oct 16, 12:03 PM
    • 476 Posts
    • 205 Thanks
    SavingSteve
    • #4
    • 12th Oct 16, 12:03 PM
    • #4
    • 12th Oct 16, 12:03 PM
    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
    • By Ali Hale 12th Oct 16, 12:15 PM
    • 12 Posts
    • 6 Thanks
    Ali Hale
    • #5
    • 12th Oct 16, 12:15 PM
    • #5
    • 12th Oct 16, 12:15 PM
    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.
    Originally posted by Thrugelmir
    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.)

    You don't say what is happening to your existing property.
    Originally posted by Thrugelmir
    I should have been clearer: nothing's changing about the existing property. We will continue to own and live in it.
    _________________________________________
    Ali Hale
    • Ali Hale
    • By Ali Hale 12th Oct 16, 12:19 PM
    • 12 Posts
    • 6 Thanks
    Ali Hale
    • #6
    • 12th Oct 16, 12:19 PM
    • #6
    • 12th Oct 16, 12:19 PM
    Big thanks to Steve and Muhandis for the advice, much appreciated. :-)

    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.
    Originally posted by SavingSteve
    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.
    _________________________________________
    Ali Hale
    • Bonfire Bride
    • By Bonfire Bride 12th Oct 16, 12:19 PM
    • 664 Posts
    • 817 Thanks
    Bonfire Bride
    • #7
    • 12th Oct 16, 12:19 PM
    • #7
    • 12th Oct 16, 12:19 PM
    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.
    Last edited by Bonfire Bride; 12-10-2016 at 12:22 PM.
    Mummy to 2 little boys born in 2013 & 2015
    House on the market for 19 months ....SOLD! ...complete!
    Natalie
    • Thrugelmir
    • By Thrugelmir 12th Oct 16, 12:58 PM
    • 51,268 Posts
    • 43,073 Thanks
    Thrugelmir
    • #8
    • 12th Oct 16, 12:58 PM
    • #8
    • 12th Oct 16, 12:58 PM
    I should have been clearer: nothing's changing about the existing property. We will continue to own and live in it.
    Originally posted by Ali Hale
    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.
    “A man is rich who lives upon what he has. A man is poor who lives upon what is coming. A prudent man lives within his income, and saves against ‘a rainy day’.”
    • Pixie5740
    • By Pixie5740 12th Oct 16, 1:36 PM
    • 8,861 Posts
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    Pixie5740
    • #9
    • 12th Oct 16, 1:36 PM
    • #9
    • 12th Oct 16, 1:36 PM
    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.
    Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.
    • getmore4less
    • By getmore4less 12th Oct 16, 3:54 PM
    • 26,263 Posts
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    getmore4less
    Landlord+ tenant does not equal landlord+friend.

    Will you chuck them out when they can't pay?
    • Ali Hale
    • By Ali Hale 12th Oct 16, 4:07 PM
    • 12 Posts
    • 6 Thanks
    Ali Hale
    Landlord+ tenant does not equal landlord+friend.

    Will you chuck them out when they can't pay?
    Originally posted by getmore4less
    Nope.

    I do appreciate everyone's warnings about renting to friends. This is *one* option we're exploring.
    _________________________________________
    Ali Hale
    • getmore4less
    • By getmore4less 12th Oct 16, 4:16 PM
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    getmore4less
    Nope.

    I do appreciate everyone's warnings about renting to friends. This is *one* option we're exploring.
    Originally posted by Ali Hale
    Even if a lender will accommodate this sort of proposal...


    You need to be 100% sure you can cover the costs without any rent coming in.
    • getmore4less
    • By getmore4less 12th Oct 16, 4:21 PM
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    getmore4less
    What rent do those 120k places make?
    • getmore4less
    • By getmore4less 12th Oct 16, 4:23 PM
    • 26,263 Posts
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    getmore4less
    What are the repayment terms on the loan?
    • Ali Hale
    • By Ali Hale 12th Oct 16, 5:37 PM
    • 12 Posts
    • 6 Thanks
    Ali Hale
    What rent do those 120k places make?
    Originally posted by getmore4less
    From looking at similar properties up for rent in our area, around £550-600/month.

    What are the repayment terms on the loan?
    Originally posted by getmore4less
    It's supposed to be paid off in full by mid-2035 (ie. 25 yrs since start date). We're currently paying my dad £866.02/month.

    It would be possible to take a "holiday" from the loan if needed, but this would increase our monthly payments in future, in order to pay it off by the deadline.


    As I say, this is one option we're exploring. I realise there are a lot of potential downsides, not least the danger of mixing friends and money. I'm really just trying to establish the feasibility of it, and particularly, whether a broker will be able to offer useful advice.

    What I'm hoping for, if I do go to a broker, is either:

    1. A mortgage deal (yay)
    2. A very clear picture of what we need to do / change in order to get a mortgage deal (e.g. "Ali, you will need one year of accounts showing an income of at least £X...")

    I feel like the consensus here is that a broker would be able to offer 2., even if 1. is not possible (which I realise it may well not be).
    _________________________________________
    Ali Hale
    • getmore4less
    • By getmore4less 12th Oct 16, 5:55 PM
    • 26,263 Posts
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    getmore4less
    You have a loan you pay £866pm and a gift back that gives you £500pm from the same source.

    quite an unusual way to reduce a IHT liability
    • neo2020
    • By neo2020 12th Oct 16, 6:14 PM
    • 46 Posts
    • 19 Thanks
    neo2020
    I'm really just trying to establish the feasibility of it, and particularly, whether a broker will be able to offer useful advice.
    Originally posted by Ali Hale
    There's only one way to establish this: speak to a broker. No broker will charge you for the initial consultation.
    • Ali Hale
    • By Ali Hale 12th Oct 16, 6:43 PM
    • 12 Posts
    • 6 Thanks
    Ali Hale
    There's only one way to establish this: speak to a broker. No broker will charge you for the initial consultation.
    Originally posted by neo2020
    That's very reassuring, thank you! :-)
    _________________________________________
    Ali Hale
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