Rent out our flat & buy a house...advice please

hobbit84

We currently own a flat and are £10k in neg equity. We are desperate to move given our growing family but obviously we can't sell up now.

I have a little idea I'm thinking of...my mum paid off her mortgage with money from when my dad died unexpectedly. She also has some left. I'm thinking that we could rent out our flat (market research done and we can cover the mortgage no probs) and ask my Mum for help. We would need approx £18k for a 10% deposit and would like to do it all like a proper business agreement so we all know where we stand. However, I'm unsure of the details and technicalities behind it.

My Mum couldn't get a mortgage for the amount we need as she is on her own with an annual salary of £17k. We have a joint income of £55k and an existing mortgage currently owing £165k. Does anyone have any advice on how we can make this work for us.

I know our mortgage lender (Halifax) would technically need to reassess our mortgage if we were to rent the property but our advisor there told us what they don't know won't hurt (!!). Any advice gratefully received. Thanks in advance.

Emily x

betmunch

hobbit84 wrote: »

I know our mortgage lender (Halifax) would technically need to reassess our mortgage if we were to rent the property but our advisor there told us what they don't know won't hurt (!!). Any advice gratefully received. Thanks in advance.

Cracking advice!

My Advice to you would be to get another adviser, then go through with your plan, but do it all above board or not at all.

Whatever you do, dont breach the terms and conditions of your mortgage or it could lead to repossession

G_M

If you are going to rent out your flat, do it properly.
Mortageg lender permission
landlords insurance
HMRC declaration
etc etc

But before doing this, learn what's involved. Get yourself a good book like this, read up everything on Landlordzone (including the problems that come up on the forum) and join a landlords Association.

Henry_Hoover_2

betmunch wrote: »

Cracking advice!

My Advice to you would be to get another adviser, then go through with your plan, but do it all above board or not at all.

Whatever you do, dont breach the terms and conditions of your mortgage or it could lead to repossession

Agreed!

That is terrible advice from your adviser!

hazyjo

How come you know you're in £10k negative equity? If you've had it valued and are going by that figure, the chances are you're way over £10k in neg equity.

Maybe it's just me, but I'm not sure if you're talking about selling up and taking on a bigger mortgage for a bigger house - presume that from the title. Or are you talking about buying something with your mum? (Doubtful about that last one, but best to check! Really not sure why you said 'My Mum couldn't get a mortgage for the amount we need'.)

Definitely ignore/ditch the advisor! What a plank.

How much of a struggle has it been so far financially? If you're looking to max out on your mortgage, and take a loan from your mum, will you actually afford to pay back both? Or would your mum be 'investing' in your house? What if that falls in neg equity and something happens that means you have to sell... what if it meant you had to sell the flat and the house and both were in neg equity? You just never know what's round the corner. What if you didn't have a tenant in the flat for 6 months? Would you really manage financially?

If you currently have a lower mortgage than what you're planning on taking on, and no loan to pay back to your mum (presuming it would be a loan), maybe save all that extra money for a year or two to make up the neg equity difference, then just try selling your flat and buying a house.

Sorry if I'm being negative, I just don't want you to take too many risks with a growing family.

Jx

BitterAndTwisted

Not only are you prepared to take a huge financial risk yourself but you want to risk some of your mother's retirement fund as well?

Being a residential landlord is not a sure-fire way of earning an income if you don't know what you're doing. Even experienced, professional landlords face non-paying tenants and void periods from time to time.

You're going to have to declare all of the rent on your income-tax return as income as well. Are you aware of that?

What happens if you get some professional tenant in your property who stops paying the rent, it takes you months to get shot of them and meanwhile they trash the place and it costs you thousands to put it right before you can get the next lot of tenants in? Would you have a plan for that sort of contingency?

scottishblondie

First off - ditch that advisor. All they're going to get you is trouble! If you decide to rent out your flat then you need to do it all properly. That means informing your lender, and the tax man, getting insurance and being prepared for all the potential problems. The biggest issue I see with renting it out is that while in negative equity the lender is unlikely to give consent to let, so you would have to significantly pay down your mortgage first.

Next point - it sounds like you have no deposit saved? Lenders will not be happy that you need to borrow the money for the deposit, so you wouldn't be abe to have "a proper business arrangement" as they will want proof that the money from your mum is a gift, not a loan. Also, would the proposed loan come from the leftover money or would she have to remortgage her property? Either way it would leave her in a precarious situation - obviously you have every intention of paying her back but you never know what might go wrong. I'm going to have to say that anything involving borrowing from your mum is not going to work.

CloudCuckooLand

BitterAndTwisted wrote: »

Not only are you prepared to take a huge financial risk yourself but you want to risk some of your mother's retirement fund as well?

Seconded.

On £55k joint income, and you don't have £18k in the bank..?

You need to ask Mum how she manages on £17k and start using the same money-saving techniques.

Don't suppose there is much point suggesting you defer growing the family until you have suitable accommodation first..?

betmunch

CloudCuckooLand wrote: »

Don't suppose there is much point suggesting you defer growing the family until you have suitable accommodation first..?

I wish my soon to be ex-wife was friends with you!