How do raise the dosh to buy my dad's house?

shhh2000

OK, so here's the deal. We have moved into my dad's house and are going to buy it from him. Trouble is we moved from London to countryside which meant a drop in salaries for hubbie and I, and then with the credit crunch we can't get a mortgage. So...how to raise the extra deposit needed to get a mortgage.
This is where we are:
Dad's house is worth about £300k
We have a flat in London worth about £200k with equity of about £85k.
We have joint debts of about £20k.
We have joint income of about £45k.
We have a paid up endowment worth about £26k
I have pensions which I can access in 8 years of about £34k.
The flat in London is tenanted at the moment and we cover the mortgage, etc, with the current rental.
I got mortgage advice to take out a mortgage for £225 (dad said he would forego 25% as deposit paid) and to re-mortgage the flat to interest only which would give us an extra income of about £300/month. We did not get a mortgage based on affordability.
We have no spare cash to:
a. get the tenant out and cope without his rent until we have sold. (It would help if we could redecorate and smarten up the garden).
b. pay for a HIP.
What would you recommend we do?

Love me
x

gmgmgm

I'm trying not to be flippant here, but if paying for a £300 HIP is difficult, how do you expect to be able to pay for and maintain a £300,000 house?

Treadmill

I'd say that you can't afford to buy this house going by what you have written

sunshinetours

£45k income and you are looking for a £225k mortgage - that is 5 times joint income, ignoring the £20k debts that the mortgage company will not ignore

With the greatest of respect unless you release your "equity" which is only on paper at the moment, you cannot afford this house at £300k

You may also have a stamp duty issue if the house is worth £300k and you are buying it for £225k as the governemet would want their additional 2% on the actual market value of £300k not the 1% on £225k

Seriously re-think your plans I'm afraid

Fire_Fox

You have recently both reduced your incomes so you are probably overspending, you already owe £130K and you want to borrow another £230K?? Why on earth would you do that? Seriously there are people all over the DFW and BR boards who have done exactly that and lost the gamble. Please don't take money out of endowments or pensions, that isn't what any reputable Financial Advisor would recommend.

What happens if you fall pregnant/ one of you gets ill/ one of you is made redundant/ one of your cars blows up/ something major needs fixing in one or both houses/ your tenant moves out/ you don't find another for three months?

shhh2000

We had considered that we could cash in the endowment, releasing £26k but re-invest £20k, giving us £6k immediately. We would use this to cover selling costs for the flat. Once flat is sold we would have an additional £85k.
We would keep back 15k to cover stamp duty and other purchase costs.
With a market value of £300,000 we would put the £70k from selling our flat, plus £75 deposit gifted by my dad leaving us to need a mortgage for £155,000. This is 3.5 times joint incomes.
Do I have my sums right? This doesn't seem unachievable to me? What do you think?

hethmar

Why are you buying dads house? Is he going to live with you? Are there not other houses in the area that would be more within your budget?

00ec25

shhh2000 wrote: »

We had considered that we could cash in the endowment, releasing £26k but re-invest £20k, giving us £6k immediately. We would use this to cover selling costs for the flat. Once flat is sold we would have an additional £85k.
We would keep back 15k to cover stamp duty and other purchase costs.
With a market value of £300,000 we would put the £70k from selling our flat, plus £75 deposit gifted by my dad leaving us to need a mortgage for £155,000. This is 3.5 times joint incomes.
Do I have my sums right? This doesn't seem unachievable to me? What do you think?

mathematcially your statements are true however, you have made 2 key assumptions which we cannot comment on:
1. your flat valuation is achieved in the actual sold price and the £85 equity is released in full
2 your endowment value is really its actual surrender value £26 and does not further decrease by the time you cash it in (given that many are doing so on a monthly basis at the moment!)

also hope that Dad lives >7 years otherwise you will face an inheritance tax bill!

shhh2000

My 3 siblings will also be hoping that dad lives another 7 years as he is sharing out the sale proceeds equally between the 4 of us (though I get mine up front as gifted deposit).
2 years ago the house was valued at £400k, now £300k. I do think it is a good investment even if you take away the emotional element which is that it would break my dad's heart to see the place sold and none of my siblings will take it on.
If we can manage to do some improvement on dad's house it would appreciate even more as presently it is very basic with no mod cons.

Endowment value is correct as at Friday. This is a paid up endowment and I think in any event it would better to invest it elsewhere as I think I could get a better return (it has earned £200 interest in last 12 months).
Only variable is the selling price for my flat.

Cissi

shhh2000 wrote: »

Only variable is the selling price for my flat.

That's quite a big variable though... I think you need to sell it first, before you even think about doing all this. In the meantime, chances are that the market value of your Dad's house will fall further, leaving you with a more manageable gap - even though this may not please your siblings as their share will be smaller too.

What area of the country are you in? If the house has already lost 25% of its value in 2 years, I'd say it's almost certain that it will fall further. Why stretch yourselves to the max now, just so that your siblings can cash in

hethmar

So you will need extra money to refurbish the house if it has no mod cons at present?