Mortgage for 1/3 of a house

warburtonr

Hi Everyone,

Thank you in advance for anyone taking the time to read this :money:

I'll try and keep it brief! Heres the situation:

1) Parents divorce and 1 gets 2/3 of house and the other 1/3.

2) it's an amicable divorce and for a while they continue to live together while the house is for sale. However the house doesnt sell and neither party wished to reduce the price.

3) So the daughter offers to buy the 1/3 and live in the house with the mother who owns 2/3 - buying the father out.

4) However the bank won't do a mortgage based on 1/3 of the house. The bank will only lend on a +50% share.

Now the repayments are small and the daughter can easily cover them. Can the house be used as security for a loan in the mothers name?

The risks of lending and using the house as security are fully understood. So please no advise needed on this. Advise needed on the practicalities of getting such a loan and the best way to go about it.

Thanks!!!!!!!

GMS

It would need to be a remortgage with a Transfer of Equity from father to daughter with daughter added to the new mortgage.

Would be a tenants in common set up to define the shares of mother and daughter. Solicitor would do this as part of conveyancing.

Speak to current lender (if one) and/or a good broker

warburtonr

Brilliant thanks

I should mention that there is no mortgage on the house at the moment. The house is 100% owned.

What should be the first move? Approach lender for the finance?

DVardysShadow

The reason the lender will not do this is because there is no market for selling 1/3 of a house. Mother and father could sell to mother and daughter who take out a 1/3 mortgage and declare their positions with a separate trust deed. Mother becomes vulnerable to misdemeanours of daughter in repaying.

warburtonr

So how does this work in practice?

In simple terms - how does the daughter arrange the finance for the 1/3 assuming the 2/3 can be used as security. As stated originally, the risks to the mother for non-payment by the daughter are fully understood.

What I am trying to find is the cheapest, easiest way to raise the 1/3, using the 2/3 as security.

kingstreet

Mother and daughter apply for the mortgage to purchase father's share. During the process, they have a solicitor draw the papers for a tenancy in common (a joint tenancy will be fine if daughter is happy for mother to get her share on death and vice versa) together with a deed confirming the equity split.

You need to stop thinking of the security in thirds. The lender will take the whole property as security, or nothing. If the mortgage payments cease, the whole property will be repossessed eventually and any residual monies paid over to the former owners for them to split as they wish, or according to whatever agreement they draw up between them.

Annisele

It's much easier if it's *not* just the daughter arranging the loan.

If the mother and daughter *jointly* borrow 1/3 of the value of the house, lenders will be much happier. Would that be acceptable to both mother and daughter? Is there any reason it would be difficult for the mother to be named on a mortgage?

warburtonr

Thanks King Street. The only reason I was thinking in 1/3s is because the bank said they wouldnt give a mortgage for the 1/3.

Would it be simpler if the mother got a mortgage for the 1/3? Would it be income assessed if the house is used as security?

warburtonr

Hi Annisele,

You beat me too it! Thanks for your post

Yes it could all be in the mothers name ( or in joint names). It's just the mother now only has a pension as an income and so the daughter will be making the repayments.

GMS

Forget about the 1/3. The mortgage would be secured on the property full stop, not a third of it.

Income would need to be enough to support the mortgage so whatever the amount is then that is the figure. Loan to Value should be low so access to the better rates possible.

How much do you need?
What are your incomes?

warburtonr

Would need 75k. The total value of house is 225k - income is 25k.

Thanks!