'Remortgaging' to fund another deposit

maniacgeorge

I know this sounds like something we should talk to a mortgage broker about and eventually we will but I wanted to see if I could get a general view on here.

I am looking to purchase a house for myself costing around £100k. My income should allow hopefully for borrowing three quarters of this.

My Mother wishes to help me raise a deposit and she is looking for the best way to do so. She has a house worth probably nearly £400k without a mortgage and what I wonder is can she get a small mortgage on this property (£25k)?

I know this sounds like a secured loan but the idea would be for me to rent rooms in my new house and to repay her for her deposit. Will it be possible for her to get this kind of mortgage? Any experiences of doing so or advice about how to proceed?

Thanks.:)

Thrugelmir

Your purchase and your mothers remortgage are 2 separate issues.

There's no reason why your mother would be unable to raise £25k on her property providing she meets the lenders criteria.

The other issue is then whether you can obtain a mortgage in your own right.

There is a limit on the amount of tax fee income you can earn from letting rooms. So you'll need to calculate whether this will be sufficient to repay your mother.

The money from your mother will have to be in the form of a gift not a loan.

HappyMJ

maniacgeorge wrote: »

I know this sounds like something we should talk to a mortgage broker about and eventually we will but I wanted to see if I could get a general view on here.

I am looking to purchase a house for myself costing around £100k. My income should allow hopefully for borrowing three quarters of this.

My Mother wishes to help me raise a deposit and she is looking for the best way to do so. She has a house worth probably nearly £400k without a mortgage and what I wonder is can she get a small mortgage on this property (£25k)?

I know this sounds like a secured loan but the idea would be for me to rent rooms in my new house and to repay her for her deposit. Will it be possible for her to get this kind of mortgage? Any experiences of doing so or advice about how to proceed?

Thanks.:)

£100k doesn't sound like much for a house. Is this a house you would want to live in long term? Would you be better off renting a similar house for a few years moving with only 1 months notice.

Your mother can raise £25k if she has the income to support it but some banks have minimum mortgages of £30k so it might be better her asking for £30k and you asking for £70k.

Or...how about another suggestion. Your mother remortgages her house for £100k and buys a house for cash then sets up an assured shorthold tenancy agreement with you so you pay her rent. Then if you can't pay the rent she gets you out and lets the house out to someone that will pay the rent.

If you lose your job you could claim housing benefit to pay the rent.

Your mother would have to declare the income received in rent but she can use the interest on the loan taken out to buy the investment as an expense so there would be little tax to pay.

She does not need a buy to let mortgage it can be a normal owner occupied mortgage on her own house.

Thrugelmir

HappyMJ wrote: »

Your mother would have to declare the income received in rent but she can use the interest on the loan taken out to buy the investment as an expense so there would be little tax to pay.

If there's no profit then there'll be no cash generated to repay the capital balance. A profitable business pays tax.

HappyMJ

Thrugelmir wrote: »

If there's no profit then there'll be no cash generated to repay the capital balance. A profitable business pays tax.

She can use her own income to secure the mortage in the first instance. As the LVR is 25% it can be interest only. The capital does not need to repaid. It's not a genuine buy-to-let business and it does not need to be profitable. I doubt she's in it to make a profit out of her child and is only trying to help get them on the property ladder.

granoftwo

Be wary, when i let my house to my daughter and she was unemployed the council refused housing benefir as she was a close relative. we took the case up and she finally received backdated benefits, but it was a struggle (she was bringing up her son alone at the time and I was not trying to make a profit!)

maniacgeorge

Thanks to you all for the helpful replies. As I think my income itself (without rent) would be enough to cover say, a £70k loan I think it could work. £100k doesn't sound a lot but the area I want to buy in is a good value one.

I realise the money from my Mother would have to be gifted but we are close enough to know that I won't run away! I did consider her buying the house and will look into that as well.

You've really helped sort my mind on this, thanks all.

getmore4less

Mother becoming a landlord, costs for no benifit. and a overhanging potential CGT liability

One mortgage will probaly be cheaper overall, but just create a large(£100k) inter family debt and the son cannot pay the interest on the debt without it becoming liable for income tax allthough there are very simple ways round this.


With a £400k house a bit of IHT planning is in order along with this proposal.

moving £100k out of the estate might be a good option.

Creative use of an offset plus account could keep the money out of the esate while indirectly paying it back.