Right To Buy Mortgage With Guarantor‏

gavman99

i,

I would be grateful if you could advise what options there are on the following situation.

My 50 year old uncle, who is unmarried with no children, would like to purchase his council house that he has rented for over 20 years. He has never owned a house before. He qualifies for the full discount of 70% under the Right To Buy scheme from the local council which is West Lothian Council in Scotland.

Unfortunately my uncle does not work due to long term illness. He receives incapacity benefit and the higher rate of disability living allowance. Being totally realistic, it is unlikely he will work ever again.

As he has no income other than benefits, I'm assuming the only way he could get a mortgage is if he gets someone to act as a guarantor on his mortgage application. Does this sound about right ?

The approx open market value of his house is approx £80k, so the purchase price after the 70% discount would be approx £24k.

For info, I'm a 36 year old married man with two young kids. My wife and I own our home (15 years mortgage remaining). I have a high enough income to cover my own mortgage and the additional £24k for my uncles home.

Based on the above, are there companies out there who offer guarantor mortages that would be suitable for our situation ?

Do the interest rates on these mortages tend to be higher than normal mortgages ?

Are deposits likely to be required ?

Can these mortgages be interest only or do they have to be on a repayment basis ?

Any other info at all would be greatly appreciated.

Many thanks for your time.
Gavin.

Thrugelmir

Why not remortgage your own home and gift your Uncle the money to purchase the property outright?

gavman99

Thrugelmir wrote: »

Why not remortgage your own home and gift your Uncle the money to purchase the property outright?

Because its not me thats buying it. It's him. Although his benefits will cover the mortage payment, he won't get a mortage without a guarantor.

Conrad

A gurantor is impossible in this case as such mortgages are only ever a temporary solution with a defined and clear exit route - so for example the parents of a trainee Solicitor could guarantee the loan until thier child has fully qualified when thier own income is expected to rise.

Your Uncle can get a mortgage in his own right, subject to various conditions being met, so the only way this will happen is in his own name.
The property construction type will matter a great deal - I mention this as it is common for council property to be made from non standard materials such as concrete.

All the best.

gavman99

Conrad wrote: »

A gurantor is impossible in this case as such mortgages are only ever a temporary solution with a defined and clear exit route - so for example the parents of a trainee Solicitor could guarantee the loan until thier child has fully qualified when thier own income is expected to rise.

Your Uncle can get a mortgage in his own right, subject to various conditions being met, so the only way this will happen is in his own name.
The property construction type will matter a great deal - I mention this as it is common for council property to be made from non standard materials such as concrete.

All the best.

I appreciate your response Conrad. I'd be interested to know why you think its impossible though ? I appreciate that in todays climate, these type of mortgages may be hard to come by, if at all, but to say its impossible ??

Also, why does it have to be a temporary solution ? Over the term of the mortgage, the mortgage are guaranteed to get their payment either from the owner or the guarantor. On the face of it, this seems to be a better situation for the lender, as if the owner gets into money troubles, there is another payment route for them rather than going straight into the debt/reposession route.

silvercar

gavman99 wrote: »

Because its not me thats buying it. It's him. Although his benefits will cover the mortage payment, he won't get a mortage without a guarantor.

You can increase your mortgage and then either give him the money to buy the property outright or you could get a solicitor to draw up some contract where he repays you - effectively you act as his lender.

The approx open market value of his house is approx £80k, so the purchase price after the 70% discount would be approx £24k.

Are you sure about this? According to the scot gov website, the discount max for a house is 60%, for 20 year tenant it would be 50%.

http://www.scotland.gov.uk/Publications/2011/02/02164100/3

gavman99

Increasing my mortage is not an option as we are currently in negative equity following the housing crash a few months after we bought.

I got the 70% figure from the actual council website here, although having looked at the link you posted, maybe the 70% figiure I seen related to buying a flat, whereas he lives in a one bedroomed bungalow (OAP style house)

Q. How much discount am I entitled to when I buy my council property?

A. The value of your discount ranges from 20% to 70%, depending upon the type of council property you wish to purchase and how long you've had a tenancy.

Conrad

Gavman - current lending guidance laid down by the FSA (the Government in effect), stipulates guarantor lending is for exceptional cases only, and where a short term exit route for the property owner can be demonstrated. Guarantor default rates are comparitivly high which is thought to be down to the fact when push comes to shove a non resident is more likely to default as it is not thier own home at risk so really they have not too much to loose if the mortgage goes into arears and in any event you say you have no equity to throw into the deal so you would be seen to have little emmotional attatchment to a guarantor deal as you are not staking anything / not putting your own assets at risk.

Furthermore, lenders have found it difficult to force guarantors to pay when things get sticky and also there have been situations where the guarantor refuses to pay as they say they think the borrower can still afford to pay (for example because they've seen them down the bookies) so lenders end up chasing fantoms, so it's no where near as straight forward as you might think.

As I said, the only way forward is to have it done in your Uncles name only, which as I said is possible.

All the best

poppy_f1

why would he want to give up a secured tenancy for a mortgage where he would have to pay for all the repairs himself, whereas at the moment the council would cover everything
also although he is on long term disability benefits at the moment who knows what may happen in 5 years, the gvt may not increase the amount and there already has been talk that DLA could be removed
if he isnt working, i am assuming he gets housing benefit, well once the house was bought this would be lost

lot more to think about than just getting the mortgage

geoffky

leave him alone..let the council sort out his repairs and maintain the house and the security he has in tenure...its priceless..but i see greedy people hovering..Also if he needs care later in life the council will take the house to pay for the care.

gavman99

Conrad - I wasnt aware of most of those points you made so thanks for clarifying your original post.

Poppy - I think theres a pride thing for him. Owning your own home is a bit of an achievement where he comes from. Maybe he hasn't thought a lor of it through.

Thanks for your help folks.