Advice required for mortgage application

Pearcy45

Hi,

I am new to the board and would like some advice on my intention to obtain a mortgage.

The property my wife and are living in is owned by my mother who is willing to sell it for £60k, 23k less than what it is worth.

Due to a number of financial liabilities we have at the moment, we require a mortgage for hopefully it's value. However we have been informed that we can only borrow upto 95% LTV by a broker we have sought advice from. We require to borrow at least £85k so we will have some capital to invest into the property for improvements.

Due to some missed payments on a loan with the Natwest Bank we have already been declined by a prime lender, Northern Rock. Can anyone advise me of what our circumstances, namely as we're getting the house as a gift and where we would stand in obtaining a mortgage for the £85k.

Cheers.

Pearcy45

herbiesjp

You could do the following:

You would have to buy at the current value, say £85k, and get a 100% mortgage.

Your solicitor would transfer the purchase funds of £85k from the lender to your mother. Your mother would then gift back to you the £25k to do up the property.

Be sure to look into all the Inheritance Tax implications

HTH

Coupon-mad

Yes, I agree with the answer above.

At no point mention to the mortgage company that the agreed purchase price (pp) is less than the value. Otherwise they will only lend against the lower of the pp or valuation (at least that was the case when I worked in lending a decade ago!).

Pearcy45

Thanks guys,

Just a little concerned about my credit file at the moment. Although I have no ccj's or defaults, it seems that we might have difficulty obtaining a mortgage from a prime lender.

homer_j_3

Are you sure that you can afford to do what you are doing?

I am sure that if your mum is willing to allow you to remain living there and you have a roof over your head, wouldnt it be better to get your credit right before adding a mortgage to your burdens and putting your home at risk.

If you are certain that you can afford it and you are not going to be able to get away with a 95% mortgage then I would say there are lenders that will consider you but I would prefer that you sought qualified advice and allowed that person to see whether or not it would be right for you to do what you want to do.

Pearcy45

Hi homer_j

I don't disagree with you on your first point, our circumstances are that currenly we have approx £700 disposable income once all our creditors are paid from both salaries. However my wife is expecting our first child and will go on statutory maternity pay in October.

I have completed some initial number crunching and it seems if we can obtain a mortgage for £85K or even £80K with a loan to make up the remainder at the same rate as the mortgage. We can clear the majority of our liabilities leaving us with a lump figure of only £6k after our main liabilities are paid, but with a larger amount of disposable income approx £1,200 per month. I have calculated this income based on a mortgage payment of approx £550 per month.

When my wife commences her maternity pay this will reduce to £750.00 per month, but we will have the £6k to fall back on. This again has been based on a mortgage of £550.00 per month.

This seems to be the best solution I can think of until my wife goes back to work after 6 months. Do you think an interest only mortgage would be better in our situation ?

Any further advice would be most appreciated.

Pearcy45

homer_j_3

Clearly you have been doing your calculations and I see why you are wanting to move now rather than later.

I would still seek professional advice as the maternity leave could also raise issues with some lenders and trying to source the right product and lender with constant refusal may ruin your credit even further.

AndrewSmith

There are some lenders who will allow missed payments and will allow also a parental gifted equity, as long as the equity gifted is unconditonal and repayment of it is not required.

This way it is perfectly legitimate for you to buy the property at it's full market value of £83,000, with a deposit of 10% being gifted equity from your mother.

This will mean that you have a mortgage of £74,700.

As your mother only actually wants £60,000 for the property maybe she would return the extra £14,700 to you to assist with the renovations you speak of and consolidating the current outstanding liabilities?

Any chance of posting details of the outstanding liabilities? Would make it a little easier.

Many thanks

Andy

Conrad

Buying from a relative below value is fine. There are a number of lenders who allow the client to borrow above discounted purchase price.

If youre credit rating is a little low this may of course be reflected in rates although the rates shouldnt be too high.

No physical money would need to be transfered between yourselves.

Pearcy45

Hi Andrew

I'm intrigued about the parental gifted equity. However, I am not too sure if my mother would give me the £14,700 back. The lower mortgage sounds appealing but we need at least the £25k to pay off the outstanding liabilities

Natwest Loan - 5.5k
Window Investment - 3.3k
Credit Cards - 7k
misc - 2k

A little confused as should we obtain a mortgage for £74,700, we will only have £14,700 to pay our liabilities?? without the extra £8,300 we would not have the cash needed.

Apologies if I have mis-understood.

Pearcy45 and thanks conrad

AndrewSmith

Pearcy45 wrote:

Hi Andrew

I'm intrigued about the parental gifted equity. However, I am not too sure if my mother would give me the £14,700 back. The lower mortgage sounds appealing but we need at least the £25k to pay off the outstanding liabilities

Even if you decided to go for the 100% route you would still have to rely on your mother returning the excess funds to you. At completion, the mortgage monies would be transferred by your solicitor to your mother's solicitor, then to your mother. You do not actually get hold of any of the mortgage money unless it is returned to you by your mother.

Pearcy45 wrote:

A little confused as should we obtain a mortgage for £74,700, we will only have £14,700 to pay our liabilities?? without the extra £8,300 we would not have the cash needed.

The reason I suggested 90% is that it will afford you potentially better rates and open more avenues of choice to you. Also at the time I did not know the extent of the unsecured borrowing you wanted to consolidate.

You must think carefully about consolidating into a mortgage. It can cost you in the long run sometimes twice as much in real terms.

What are the payments and approximate rates of interest on the current debts?

Andy