Mortgage from Bank of M&D

kodak1

Hi all,

I bought my first house 3 years ago, after a 2 year fixed rate mortgage I'm now on a low SVR.

My parents have recently inherited some money and want to effectively become my mortgage provider as they would get a better rate of interest from me than any savings account!

If I forfeit my current mortgage am I likely to have issues getting a mortgage in the future because I have no credit rating?

Are there any other potential issues we should watch out for with a 'Bank of Mum & Dad' mortgage?

Thanks for any answers!

getmore4less

WHat happens if they need the money or you stop paying or people die.


One option is an offset mortgage where they lend you the money to offset your mortgage without them loosing control of their money.

Yorkshire BS do one of these.

http://www.ybs.co.uk/mortgages/types/offset/offset_plus/offsetplus_b.html

TrickyDicky101

You won't forfeit your current mortgage - you will repay it using the money your parents loan to you.

Legally, your parents should pay tax on the income they receive from advancing you the mortgage so they should then be filling in an annual tax return to HRMC. It's potentially a serious risk to your parents as what protection would they have against you simply not repaying? I'm not suggesting you won't, it's just something that should be considered.

JQ.

Its actually quite a good idea. Just make sure it's all above board with the taxman and make sure both you and them have different legal representation.

kodak1

Hi,

Thanks for the replies, the inquiries I've made elsewhere also suggest that it's a good move. The folks certainly aren't seeking to tax-dodge but want to ensure the best return possible for their investments.

Regarding queries about repayments if I found myself in a position where I couldn't pay them I would probably sell / rent the house anyway. As they are thinking of this as a long term investment they are not concerned about any short term issues so long as I make up any missed payments (not that I would ever want to put them in that position!).

So next question is......how do we work out a rate of interest between us that is fair to both parties? It needs to be a simple method, probably somehow linked to RPI/CPI figures, any advice?

dwsjarcmcd

kodak1 wrote: »

So next question is......how do we work out a rate of interest between us that is fair to both parties? It needs to be a simple method, probably somehow linked to RPI/CPI figures, any advice?

Not sure than inflation indices are the correct measure. Would it not be sensible to link to Bank of England rate, bearing in mind everyone's objectives? So you parents want a better return than they are currently getting, you want to pay less than you currently paying.

Don't know what either of these figures would be but somewhere around Base rate + 3 to 4% sounds ok as a place to research. Maybe review annually to ensure the rate is still achieving your objectives.