Helping Parents

radaas

Hi all this is a bit of a strange query but I cannnot find any info online.

Basically..

Parents live in a property valued at 350k they want to do a b2l so that they can take 250k equity out to help them purchase there new house as they are having problems selling.

New house is 470k after fees, savings and the remortgage they are left with a 180k shortfall which is provided by getting a new mortgage for the new property.

I have got detailed calculations for it all, but before floating the idea to them I want to know if it is possible to use my income in their multiplier as I earn more then them?

This I hope will reduce the amount of equity for the b2l property so reduce the costs heavily. ie taking out 77k on a repayment mortgage rather than on the b2l interest only.

(the 77k is the multiplier difference between my income and my mums)

I do not see myself owning a property in the near future (if I could live in a box I would) and 2/3 of my income does not get used.

So can my dads income and mine (instead of my mums) be combined for the new mortgage application.

Also how can I then takes steps to remove myself in a tax efficient way as I want them to be the only owners? do I gift my share of the house to my mum (I do not mind still being liable for the mortgage, so I carry the liability but no asset)

This is a very strange one, but I owe them a lot and want to do everything in my power to get them the house they have always dreamed of.

radaas

PS take no notice of my sig, that was 3 years ago, a lot has changed...

holly_hobby

Few issues to address..

Are you to reside in the new property with your parents ?

1 How old are your parents ?
2 What is there source of income ?
3 You say you want to use your income to increase affordability for mge calculation, but can your parents afford to service the mge over the long term ?
4 How long do they want the new mortgage over ?

Notwithstanding issues that may arise depending on the above ...

It would be much more tax efficient for your parents to release equity out of their current property to be let, to fund their new property - as the resulting mortgage interest may be wholly offset against rental income for inc tax purposes (which is permissible up to 100% of the value of the property when it commenced being let, and useful to know if your parents want to release further equity in the future).

Anyways, if you can provide a bit more info as noted above, more definite guidance can be provided.

Hope this helps

Holly

radaas

HI Holly, thanks for responding

To answer your questions,
1.Parents are 48 and 50
2.They both work full time 37k combined
3. They can manage as the current house should in theory bring in enough to cover a large chunk of it (they are mortgage free at the moment)

What has been proposed to them
b2l mortgage 250k lifetime tracker 4.49% plus fees £935 p/m
new mortgage 185k 2yr tracker 2.29% plus fees £811 p/m

Can rent current place for £1600 (but as they are scared as hell that a dodgy tenant will cause tens of thousands of damage, they want to get someone they know in the place but will need to drop to £1200 so they can afford it)

I am unsure of the period, I have heard 10years been banded around, but when I did the calculation with the figures they have it works out as a 25yr period.

I have no qualms with giving them the difference in rent vs mortgage, actually up to 1k a month.

So ideally i want to get a bigger repayment mortgage and reduce the b2l one so that at the end of the term they wont be sitting with 250k left to repay (as I understand interest only mortgages to work).

getmore4less

£350k, rent £1200pm is 4% gross yield(1600, 5.5%) but the interest is £935 so there is potential for £53 tax but if there are other costs, less tax, but a chance of havng to subsidise if £265pm won't cover it.
Hope the place is top notch on repairs.

Whats the follow on rate on the tracker.

Whats the projected retirement dates and income.

Is this next house a long term and suitable for retirement
Each move at this level costs £20k+

How much will be left in savings after these transactions.


renting to friends can be a bigger risk, what if they decide not to pay or have a financial crisis.


why are they wanting to move?

CLAPTON

I'ld be a bit surprised if they could get a mortgage for 180k on combined incomes of only £35k; have they checked this out?



getting a joint mortgage with your father seems a bad idea for lots of reasons

- you would have to be on the deeds as joint owner
- you could only remove yourself from the deeds with the permission of the lender who would probably treat this as a remortgage and so would apply their usual lending criteria (plus fees )
- potentially there may be stamp duty payable on the transfer
- if they wanted to move whilst you are part owner, your share is potentially liable to cgt.
- the future is uncertain and you must be reasonably young so who knows when you may want to buy somewhere of your own
- if you married and (sadly) died or divorced, then half their house may become your spouse's


so a thoroughly bad idea
maybe going shares in the buy to let as a business venture may be a goer but only if you fancy being a landlord to make money

probably best of all is for them to sell the place by reducing the price

Alikay

Although you're making a noble gesture in wanting to help your parents, I feel the same as if the boot were on the other foot: At the moment, with their current property unsold and insufficient income to raise the necessary mortgage on their dream house they just can't afford it. Now is not the time to be committing to huge debt and I doubt you'd find a lender, anyway. The market, their financial stability and your future are too uncertain.

I notice you mention "GF" in your signature. I take it that sometime in the future you and she will want somewhere of your own to live (even that box you mention!) and you'll need to save your money for then ....or travelling the world, starting a business...whatever you decide.

We're a similar age to your parents and we wouldn't let our adult kids make that kind of financial commitment for us, so your parents possibly wouldn't agree anyway.

holly_hobby

Hi there,

You have already had some responses, I will give my thoughts now we have a bit more info.

Ideally your parents want to pch a property for 435k with 185k funded by a residential mortgage which is equal to 42% LTV, on a joint income of 37k - which is equivilent to 5 x joint income. (assuming no other financial commitments to be taken into consideration (ex btl property) ). Their ages for reqd mge term are fine.

The multiple is high, but due to the low LTV on this, and other considerations - you may indeed manage to find a lender happy to accept this on an individually assessed basis. Accordiningly, I would approach a lender that individually underwrites, such as Ipswich B Society (whom are available nationwide to direct applicants, but have geographical restrictions for intermediary business). Their standard inc mutiple is 4.5 x main & 1 of second - so can't promise but its maybe worth bottoming it out.

Further to that, you should approach a whole of market mortgage broker for them to sound out lenders whom they feel with be flexible to the application - the low ltv (and high status) will be the crux to this. If accepted due to the low ltv you will be able to consider interest only or capital and interest repayment - my own recommendation would be C&I due to the certainty of repayment.

Again, I would stress that obtaining the mge is one thing, being in a position to maintain it over the long term is another - and I do echo what others have said in askng your parents to consider a lesser priced dream home - after all we must all live within our means.

Re the BTL - £250k to be raised on a mge - the return will need to demonstrate a rental income of £1563 (rounded) to meet the general requirement of 125% rental calc @ 6% (if the lender uses a lower fig obv there is more movement on the requirements). The rental income of 125% of mge repayment, is essentially to demonstrate that the venture is self funding.

So my advice (if 6% is used as the basis of rental calc), would be not to divulge that they will be seeking a lesser figure, to ensure that the figs work for affordability basis. (whether Mum & Dad subsequently choose to reduce the rental income reqd from their tenant, is their own choice I would argue).

CGT calculation will normally be reqd upon disposal of the property, however if the sale occurs within 3 yrs of their vacation, there is no cgt liability to be assessed. If os of the 3 yr period, a full calc will be performed, but due to various allowances there may be zero liability (it will all depend upon figs at the time of calculation).

I would strongly suggest landlord insurance - which covers the cost of damage to the property, and other areas of concern. I will leave BTL issues there for the moment, re tax etc .. etc..

Going back to funding of their new main residence - if you elect to become party to the mge there are issues as already raised, compounded in the event that the property is not your main residence, considerations include:-

* exposure to CGT
* restriction on future mge borrowing due to existing commitment with Mum & Dad
* your own liability with regards the mge repayments if your parents are unable to maintain the repayments long term
* Mum will need to be on the mge applicaton to be named on the deeds - which primarily means sourcing a lender who accepts 3 applicants (4 is usually the max), and also happy for 1 of the mortgagors as not being resident in the property (they essentially funding a dependants mge) .
* further financial issues re any future transfer of equity between you and your parents need to be considered
* how the property will be held i.e joint tenants (where the ownership falls to survivors upon the death of a mortgagor), or tenants in common (stipulated division of ownership, with each mortgagor able to bequeath their share as part of disposal of their estate on death)

The above list is not exhaustive, but gives you a taste of the possible complications with such an arrangement.

As a side issue, and from the figs discussed, I would strongly suggest your parents take some advice re estate planning (IHT mitigation), from a suitably qualified financial/wealth adviser, in addition to of course seeking guidance re their current residency proposals.

Hope this helps

Holly