Using home as equity on new mortgage

krispn

Hey folks!

My sister and I inherited our family home following the passing of a relative a few years back. It's been about 6 years now and as my sis now owns her own home (married 2 kids mortgage - living the dream we have talked about using our family home as collateral on a mortgage.

I have since moved from N. Ireland to Scotland and would like to get on the property ladder and fortunately my sis is quite supportive of me using the family home as equity. My partner and I earn approx. £45,000 combined.

The property has a value in the region of £225,000 give or take.

I'd be interested to get some views/advice from you guys as I'm unable to seek independent mortgage advice until next week as I'm working night shift until Sunday.

This is a whole unexplored area for me and I hope to get up to speed ASAP on the basic's at least.

Thank you in advance for your views and candour.

kingstreet

Is this property let then? Who's living in it?

krispn

Kingstreet

Our dad lives there now but he will be moving in with my sister quite soon. He too has been very supportive and acknowledges that a 5 bedroom house with a 1/2 acre garden could become too much for him to maintain.

The house currently has no outstanding debits/mortgage on it. We own it outright. We may rent it but I wanted to get an idea of my options as they stand. By letting the house (or as Dad suggested he remained there and had 2/3 lodgers) we could 'earn' approx £460-£690 but that would not be a dependable income(i.e. lodgers come and go, issues around non payment of rent, upkeep etc etc) and we don't want to speculate on 'potential income' the house could generate, rather use what facts we have and anything extra would be a bonus.

If I can provide any more information just ask.

Thanks

kingstreet

Well, the option of using this property as a kind of second security isn't available to you I'm afraid. Tipton & Coseley has a scheme in the Midlands where they cross-charge a parent's property to give a 100% mortgage.

The most "do-able" solution for you is likely to be a buy to let remortgage on the family home. Use this to raise a deposit for your new home. It'll have to be in the name(s) of all the owners. You mention you inherited it but your Dad appears to be living there, so that's a complication. If he is moving in with your sister, that would help you with this plan.

The BTL will give you a mortgage based on the rent covering the mortgage interest by around 25%. So to work out how much you can borrow, you need to do a little maths.

If the rent is £500 per month, that would mean an interest-only payment of upto £400 per month. Based on a 5% annual interest rate, that would mean borrowing of upto £96k.

Bear in mind if you do have void periods with no tenant, someone is going to have to meet the continuing mortgage payments.

Armed with your £96k, you can then find yourself a new home and hopefully get a very good residential mortgage deal for yourself by using the £96k as your deposit.

You need an independent or whole market broker for this.

krispn

Although dad is living there he doesn't legally 'have his day' there. I'm not sure how that would impact on the info provided however it is a useful start into the big bad world of mortgages!

Thank you!