Using Property as Security for a Mortgage?

screid

Hi,

I bought my nans house under the Right to Buy scheme (she is still living there) and it is held in trust so that when she passses away it reverts to me as the owner. I want to buy a property in the next few months and the question is - can I get a mortgage using this property as security? I obviously can get a mortgage of x times my salary giving me a grand total of X, but will I be able to get a mortgage of x times my salary + nans house (at the current market value) giving me a larger total of X to buy a house and when the house reverts to me I can sell it and pay a large chunk of the mortgage off. Is this possible?

Any advice/ideas gratefully welcome. Thanks, Shaun

AndrewSmith

Firstly I don't beleive that you can use the house as security as you currently don't own it. (Not 100% sure but I'm sure someone will elaborate).

As for the question regarding mortgages. The simple answer is no. It will still be based on your income. Either affordability based or income multiple based. The fact that you may eventually own a property without a mortgage makes no difference as the lender will still want to be satisfied that the mortgage fit's their criteria and affordability.

Lets say you raised £40,000 against your nan's house (if possible). Then you apply for a mortgage to buy another house. The lender giving the mortgage for the second house will take into consideration the mortgage you already have, thus reducing the amount they will lend, usually by the amount of the outstanding mortgage.

In my opinion, if you are going to buy a property of your own, get a mortgage on that property. Less complicated and will cost you less.

Andy

screid

Hi Andy,

The property is worth £140K and it is paid for outright so there won't be a second mortgage. I would like to just have one mortgage for x times salary and to get the most I can afford use the security of having this house which will come to me in the future as well. Are you saying that a bank/building society still won't take this into account even if there is a legal document which states that on her death it is used solely to pay all or most of the outstanding mortgage off (dependant on value at that time).

Thanks, Shaun

exil

Sorry, it is always possible for someone to change their will and leave the house to someone else. Now if they were to sell or gift the house to you, that's different. You could then use it as security - but then what happens to your nan if you
have problems with the payments? And if she is, say, 80, she could easily
soldier on for 20 or more years.

Basically, to be able to put a house up as security, you must be prepared to sell it IMMEDIATELY if you can't keep up the payments. This doesn't apply to a house in which a beloved relative is living.

AndrewSmith

Thats exactly what I am saying. There is the issue of affording the repayments until the property can be sold. Also consider the very salient points made above by exil.

I think that it is a non-starter from the word go to be honest.

Andy

screid

Thanks exil and Andy, it is all clear now. I naively thought I could just get a mortgage x times my salary and use the property as leverage to be able to get a bigger house/nicer area etc, but still only pay the mortgage on what I could get from x times my salary. In my head the fugures worked :rolleyes:, but from a mortgage lenders point of view they would still require mortgage repayments of x times my salary plus the repayments for the value I could borrow against the property. Basically a no go as it works out too much money, will have to look for something smaller and upgrade at a later date.

Once again thanks and apologies for what turned out to be a stupid question.

Shaun

herbiesjp

There are no stupid questions on the board