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Any way out of this situation?
AndyP123_2
Posts: 1 Newbie
Hello all, first post on these forums, looking for somehelp on a sticky situation I'm in.
I bought a house 2 years ago, on a joint mortgage with a friend. The house cost 142500, we put a 15% deposit down and borrowed 121000.
The 2 year fixed term period ends next month, when we will change from a rate of 6.44% with payments of £821 per month, to Bank of Scotlands SVR which is 4.84% and give monthly payments of around £725.
However, my friend has decided he wants to move on, and we have a agreed that I will be buying him out, we have agreed a figure between us, I have the money and would not require any further lending on the mortgage. It is all amicable and there is no fall out between us.
I phoned the Bank of Scotland to see about removing him from the mortgage, they said that is fine depending on affordability checks. The mortgage was arranged on a self-cert basis, as at the time, my friend was agency employed, and I was newly self-employed with no years accounts. I have 2 years acounts now, but the figure the bank look at is a companies net profit, which in my case is approx 16000, even though I put 31000 though the company, by the time my accountant has put through all the expenses such as mileage and administration fees to reduce my tax bill as much as possible, I am left with 16000 net profit, the bank declined to remove him from the mortgage based on this.
So that leaves us in a sticky situation, we are lucky that things are amicable, and also that for the moment, my friend is planning to rent for the next 2 years, so the fact that he wouldn't be able to get a mortgage wouldn't affect him immediately. My friend has stated that he has no problem with leaving his name on the mortgage for this time, untill I can find a permanent job that the bank would accept the salary as being enough for me to take the mortgage on by myself. (Outstanding balance is 119000)
So at present we basically have a gentlemens agreement as a way for him to move out and me to buy him out, which isn't ideal, are there any other possible ways out of this? My dad has agreed that he would put his name on the mortgage instead of my friends, I discussed this briefly with the bank, but they said I would have to reduce the mortgage term as my dad is 56, so I instanlty discounted this as I thought my monthly payments would go so high it would be unaffordable. However a friend of mine has found himself in an identical situation, and the bank have allowed him to put his parents name on the mortgage as long as the term of the mortgage doesn't fall outside his 75th birthday, I'm not sure what bank he is with, but it isn't BoS, so I don't know what the age limit is for a BoS mortgage. I did some calculations and if BoS limit is 75, then to fit my dad into my mortgage I would have to reduce the term from 23 years to 18, which would actually make my future payments go up from £725 to £825, which is basically the same as they were origionally, so still very affordable to me. Does any one know what the BoS age limit is on mortgages?
Are there any other routes out of this which I haven't considered? Like I say, we have an agreement and it is amicable, but I would like the peace of mind that would come with removing him from the mortgage, even if it meant putting my parents on, as no one knows what the future holds, and I think I would feel vunerable that even having paid money to buy him out and paid 100% of mortgage payments, he would still be entitled to his 50% share of the house in a hypothetical "what if" situation.
Any advice would be apreciated.
Thanks for reading.
I bought a house 2 years ago, on a joint mortgage with a friend. The house cost 142500, we put a 15% deposit down and borrowed 121000.
The 2 year fixed term period ends next month, when we will change from a rate of 6.44% with payments of £821 per month, to Bank of Scotlands SVR which is 4.84% and give monthly payments of around £725.
However, my friend has decided he wants to move on, and we have a agreed that I will be buying him out, we have agreed a figure between us, I have the money and would not require any further lending on the mortgage. It is all amicable and there is no fall out between us.
I phoned the Bank of Scotland to see about removing him from the mortgage, they said that is fine depending on affordability checks. The mortgage was arranged on a self-cert basis, as at the time, my friend was agency employed, and I was newly self-employed with no years accounts. I have 2 years acounts now, but the figure the bank look at is a companies net profit, which in my case is approx 16000, even though I put 31000 though the company, by the time my accountant has put through all the expenses such as mileage and administration fees to reduce my tax bill as much as possible, I am left with 16000 net profit, the bank declined to remove him from the mortgage based on this.
So that leaves us in a sticky situation, we are lucky that things are amicable, and also that for the moment, my friend is planning to rent for the next 2 years, so the fact that he wouldn't be able to get a mortgage wouldn't affect him immediately. My friend has stated that he has no problem with leaving his name on the mortgage for this time, untill I can find a permanent job that the bank would accept the salary as being enough for me to take the mortgage on by myself. (Outstanding balance is 119000)
So at present we basically have a gentlemens agreement as a way for him to move out and me to buy him out, which isn't ideal, are there any other possible ways out of this? My dad has agreed that he would put his name on the mortgage instead of my friends, I discussed this briefly with the bank, but they said I would have to reduce the mortgage term as my dad is 56, so I instanlty discounted this as I thought my monthly payments would go so high it would be unaffordable. However a friend of mine has found himself in an identical situation, and the bank have allowed him to put his parents name on the mortgage as long as the term of the mortgage doesn't fall outside his 75th birthday, I'm not sure what bank he is with, but it isn't BoS, so I don't know what the age limit is for a BoS mortgage. I did some calculations and if BoS limit is 75, then to fit my dad into my mortgage I would have to reduce the term from 23 years to 18, which would actually make my future payments go up from £725 to £825, which is basically the same as they were origionally, so still very affordable to me. Does any one know what the BoS age limit is on mortgages?
Are there any other routes out of this which I haven't considered? Like I say, we have an agreement and it is amicable, but I would like the peace of mind that would come with removing him from the mortgage, even if it meant putting my parents on, as no one knows what the future holds, and I think I would feel vunerable that even having paid money to buy him out and paid 100% of mortgage payments, he would still be entitled to his 50% share of the house in a hypothetical "what if" situation.
Any advice would be apreciated.
Thanks for reading.
0
Comments
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I keep explaining to my friend... if you dont want to pay tax... you will never get a mortgage.
he got a tax refund this period, when really he has been earning well.
in two years time when he has to show good profits ... he will struggle. Your in the same boat, to get a 120k mortgage on 32k ish would be just about possible depending on provider, and LTV equity available! I would assume your house price value could hve fallen 10% over the years unless there has been some improvements or modifications to the property... but im assuming that and could be wrong... all in all, you WILL struggle. need to get ur dad on board!Plan
1) Get most competitive Lifetime Mortgage (Done)
2) Make healthy savings, spend wisely (Doing)
3) Ensure healthy pension fund - (Doing)
4) Ensure house is nice, suitable, safe, and located - (Done)
5) Keep everyone happy, healthy and entertained (Done, Doing, Going to do)0 -
AndyP..you're right to be concerned....as this way you will find a resolve before things go wrong..If yr friend had any problem on his credit file this would affect you, if he went bankrupt even worse....Speak to a whole of market mortgage adviser with parents and discuss options/drawbacks etc....0
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I'm sorry to say I have no helpful suggestions to make, and this reply will probably be quite annoying - I apologise for that in advance!
I find it quite surprising that somewhere between you and your friend and your solicitors and the lenders, nobody anticipated the problem you now face, and built in some kind of procedure to deal with it.
There, I said it! I apologise again if you find it really annoying...
Ditch0 -
Ditch Crawler
talk about shutting the stable door after the horse has bolted!!0 -
Hi
Correct me if I am wrong, but now that you have two years' accounts, couldn't you just remortgage to another lender either in your sole name or with your dad using your friends lender? When you remortgage you settle the old mortgage and this will have the effect of taking your friends name off the mortgage and the deeds.The Cabbage
Its Advice - Take it or Leave it:D0 -
How about creating a legally binding rental agreement whereby you would rent your friend's share of the house for whatever is his share of the mortgage payments. Then, when he needs to get a mortgage on his own, he could show that his earlier mortgage has become a self-financing investment which makes no financial demands on his 'normal' earnings.0
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DITCH CRAWLER
It would not be a buy to let/investment mortgage...fact is...the same mortgage remains in place ie residential....you cant have half a house on residential & the other half on investment!..
CABBAGE
How do you suggest the OP obtains a 119k mortgage on net profits of 16k!! (doh!)0 -
VIGILANT22 wrote: »DITCH CRAWLER
It would not be a buy to let/investment mortgage...fact is...the same mortgage remains in place ie residential....you cant have half a house on residential & the other half on investment!
Logically (???), any new lender should not be troubled by the technicalities of the earlier mortgage, so long as the borrower can demonstrate that the repayments do not have to come out of his normal income (it would be the original lender who might have a valid objection to the abuse of the original mortgage terms).
I reckon it would be worth a try, but the two people involved, especially the OP, would for ever be vulnerable to the bad effects of any kind of fallout between the two of them.
Ditch0 -
So if the friend applied for a mortgage on his own do you really think the new lender would be not be requiring proof of rental income...in addition his share of the mortgage payment would be taken in as on outgoing on the affordability calculation...furthermore if he was discovered to be presenting false information...a CIFAS or NATIONAL HUNTER mark could be placed on his credit file...so all in all I think yr remarks are totally irresponsible.............
http://www.nhunter.co.uk/
http://www.cifas.org.uk/0 -
VIGILANT22 wrote: »So if the friend applied for a mortgage on his own do you really think the new lender would be not be requiring proof of rental income...in addition his share of the mortgage payment would be taken in as on outgoing on the affordability calculation...furthermore if he was discovered to be presenting false information...a CIFAS or NATIONAL HUNTER mark could be placed on his credit file...so all in all I think yr remarks are totally irresponsible.............
http://www.nhunter.co.uk/
http://www.cifas.org.uk/
O sorry!
I thought that a legally binding rental agreement would constitute proof of rental income - I'm not sure how that could be labelled 'false information', since it is real income, to be included in any affordability calculation.
D.0
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