Being a Guarantor for Your Parents Mortgage

Eric_Pickles

Good Evening,
Unfortunately times are quite hard for us at the moment and our interest only mortgage comes to an end next year and our endowments do not cover the repayment. Remortgaging is proving difficult as we only have one salary for the time being as one of us is self employed and the business is not going well at the moment.

The outstanding amount is £195,000 and the house value is probably in the region of £250-£275,000. We would dearly love to continue to live in the house and our son has said he is willing to help out. Our son is in the fortunate position to have no debt, no mortgage (he rents) and a good job. His approx salary is £45,000.

Obviously his kind gesture is great, if not a little upsetting.

Essentially, we are looking for help for the best way to try and set this up... if at all possible. Would the best way be for him to guarantee the mortgage (is this possible when re-mortgaging?) or is there potential for my son to be a stated name on the mortgage along side the salary already coming in? Alternatively is there anything else we should be looking at? Perhaps our Son buying the house for £195,000 with a buy to let mortgage an we rent the house back? Obviously this may incur larger costs and charges etc?

Any help you could provide would be great.

Many thanks in advance

holly_hobby

Hi there,

Tough situation for you.

Buy To Let

This is going to be difficult, as you would need to locate a regulated BTL mge lender, which is required when more than 40% of the property is occupied by linked family members. I say difficult due to the fact that all BTL lenders that I am aware of offer only unregulated BTL finance.

Guarantor

Available on a rmge with at least 1 niche lender - but must be on a capital and interest basis and a max age for the applicant (you/hubby) of 75 yrs - so the term may be an issue.

Your sons income would need to cover all his commitments, and your mge repayments, and he would be legally reqd to maintain the mge on your default (with a requirement to take independent legal advice).

Most alternative gtor lenders also want a defined time scale for the release of the guarantor i.e this can not be a longterm arrangement - which from what you have said can't be gted.

Of course your Son acting as guarantor for your mge, means that his own mortgage related borrowing capacity is hugely affected by the commitment - which will significantly effect the amount of mge available to him and may even prevent him from buying his own home (if the mge available being too low for the area he wishes to purchase in).

Son purchases property

Your son could possibly look to pch the property from you (as dependant relative situ), but he would be exposed to legal fees, stamp duty, and full CGT (less only personal annual relief) on gains on disposal, if it never acts as his main residence prior to its sale.

If he also wanted to pch a property for himself, his income will need to cover all mge borrowings - so this arrangemetn would also be very restrictive for him.

Not sure of your age but state assisted long term care may also be affected under deprevation of assets, by the property sale to your Son

A real possibility is that your lender may well give you an extended period, after scheduled redemption date (5 yrs is a typical term), to meet the shortfall, of course this will be by their grace and the remaining shortfall would have to be on a capital and interest basis over the agreed term (depending on status).

So have a chat with them, float the idea that you are concerned what your options are SHOULD your endowment fall short of the target figure - and see what they propose ..... you never know they may surprise you and you may be able to negotiate an agreeable solution and retain your home longterm !

If this fails, and I know this may not be what you want to hear, but I think it would be time to consider the possibility that you may have to sell your property, and down grade or go into rented.

However, not to close on all negatives, depending upon how large the projected shortfall is, you may find that the reality on maturity is somewhat different, and the maturity value (inc any TB) may be a lot more healthier than currently projected (which are based on prescribed FSA growth rates, which often have no bearing on the acutal performance of the contract).

However, the reverse could also be true - so a plan of action needs to be effected to take account of this event (which I know was the purpose of your post)

Sure others will be along with alternative advice, and I really feel for your situation - but I do think action without involving your Son would be the best longterm solution.

Hope this helps ... I wish you well ...

Holly x

GMS

Your son purchasing and renting to you is unlikley to be successful as it would be viewed as a 'sale and rent back' type arrangement. One lender who would allow a family buy to let would not allow it to be on the property family previously owned.

Have you approached your current lender to see if they can assist with extending the term?

Probably best to speak to a broker. Certainly not a straight forward scenario this one