Remortgage mortgage-free home to purchase second property?

dpink

I currently have a £150k property mortgage-free and wish to release £90k to fund the outright purchase of second property for my son... who will be making the repayments back on the new mortgage.

He has more than enough income to cover the resulting mortgage repayments but would take 10 months to a year to build up a 10% deposit, so this is a way of pushing things through earlier (several good reasons for this which I won't go into here).

Is this feasible at all? Any legalities or major issues with regards to this approach? Would we both have to be on the mortgage deeds for the first property? Would it be better to have him 'rent' the property... although this would mean a more expensive BTL mortgage would be required?

holly_hobby

You own an unencumbered property - and wish to release 90k for your son to pch a property.

You say that your Son has no issues in paying the mge (but will struggle saving 10% deposit), and that despite he not having any mge affordability issues, you wish to saddle a mortgage on your home, to enable him to purchase one outright.

I don't know why you would want to have the legal liability of your sons mortgage requirements, but I guess you have your reasons.

For a standard mge to be secured on your home, your income shall have to be sufficient to service it and the max term will be determined by your age - although there has been a lender bandied about on here recently whom appears not to have a max age at redemption ... yet to be established by the publisher of the info. An option will no max age boundries, would be a lifetime arrangement. The purpose of equity release, to pch a 2nd property for your Son, shouldn't pose any issues under any arrangement.

If the max term and resulting monthly repayments on a std mge are too high, then you being pty to a std mge is out - as will be reqd as you are named on the mge deeds. (with a lifetime arrangement being the next opened ended option, either with no mthly payments and interest rolled up, or with the option of making monthly repayments to ringfence the debt and protect estate).

If (subject to term) you require your son to be party to the mortgage - most lenders will want him on the deeds as well, with I believe 2 exceptions HSBC and Barclays - who are happy to consider mortgagors whom are not named on the property deeds. However, if you have issues with your age and max term, adding your son to the mge app won't solve it, as age criteria is based on the oldest applicant.

The alternative you mention being a BTL for your son, which would require a min 20% deposit

Importantly your son can not pch a property in his name under a BTL arrangement, which will be his private residence i.e not let (although I am unsure why you are considering this in any event, if you say he can afford a std mge)

However, you could pch a BTL property, under which your age at redemption won't normally be an issue. Although BTL is unregulated lending, renting to a family member (your son) changes it to regulated borrowing - of which not all BTL lenders can/will accept such business - however there are a few who will consider this. As renting to your Son would equate to a regulated mge, the lender will perform standard income and status checks. You shall also need to submit an annual SA - whether any profit is made or not.

If you sell the BTL property whilst held in your name, you shall be exposed to a CGT calculation on any gain (mitigated by reliefs and allowances).

A future transfer of equity could take place between you Son which may mitigate this, if he purchases it from you, or it is transferred to him (following repayment of the BTL mge of course). If the property is transferred to your son for no consideration (payment or exchange of goods), there will be no stamp duty land tax in excess of the nil rate band.

Although I have briefly touched each point you have raised for comment, I will repeat that, if as you say your Son can afford the mge repayments if secured on your home, why not just donate the reqd deposit and let him secure the same mge amount on his personal status. As any mge in your name is your legal responsibility to repay - whether or not your son pays you rent, or any mge secured despite the tacit agreement upon which you may provide the finance for him.

You need to sit down with a broker to discuss your requirements, and also review your will, long term care and estate provision requirements resulting from any action taken in this matter.

Hope this helps

Holly

Thrugelmir

dpink wrote: »

Would it be better to have him 'rent' the property... although this would mean a more expensive BTL mortgage would be required?

Any profit you make on letting the property will be taxable in your hands.

dpink

holly_hobby wrote: »

Although I have briefly touched each point you have raised for comment, I will repeat that, if as you say your Son can afford the mge repayments if secured on your home, why not just donate the reqd deposit and let him secure the same mge amount on his personal status. As any mge in your name is your legal responsibility to repay - whether or not your son pays you rent, or any mge secured despite the tacit agreement upon which you may provide the finance for

Hi Holly, thanks for your very detailed response, will digest it as thoroughly as I can.

In response to some queries, I am 67 years of age and currently retired. I do not have any savings to speak of and my son currently resides with me after his fianc!e had him leave the family home (turned out she was involved with someone else). However my son has his two children (1 and 3) three/four days a week and it's difficult for us all of us living under the same roof hence why we were trying to come with an option to get him into his own place earlier (without having to rent). He has capital (approx £40k) in the business he owns (convenience store and attached house) with his ex's father but this cannot be realised until it is sold, and of course the majority of his income comes from this so it's not an option anyway.

We originally had the idea of releasing funds for a 10% deposit through remortgaging or a secured loan, and my son pay his own mortgage on the new property (in addition to the remortgage or secured loan on my property). But thought that the complication/cost of setting up two mortgages would be ill-advised, plus rates would be higher?

Whichever way it will be done (if indeed it is) my son wants it so that he has the legal liability, but this might be impossible given the scenario.

Do agree sitting down with a broker/advisor will be best bet though. Thanks again.

dpink

Thrugelmir wrote: »

Any profit you make on letting the property will be taxable in your hands.

Probably not the best of ideas to go the BTL route then, in a nutshell we're looking for the simplest way to get him and my grandkids settled in a place of their own, but with minimal financial risk to me. Might be a case of sticking it out until he raises the required deposit, but as explained it's difficult for us all being under the same roof, not in a bad way you understand.

GMS

There are 100% mortgages available if you are willing to put your house up as a charge on the mortgage. Basically 100% of the purchase price is advanced with 25% of the amount being placed on your property as a charge. This is released when the 25% has been repaid or after a set time.

Not for everybody but may be a solution to having no deposit and needing a new place. Obviuosly income requirements etc would need to be met.

Something which needs to be carefully considered as it places your home at risk.

Speak to a broker to see if it is a solution.

dpink

GMS wrote: »

There are 100% mortgages available if you are willing to put your house up as a charge on the mortgage. Basically 100% of the purchase price is advanced with 25% of the amount being placed on your property as a charge. This is released when the 25% has been repaid or after a set time.

Not for everybody but may be a solution to having no deposit and needing a new place. Obviuosly income requirements etc would need to be met.

Something which needs to be carefully considered as it places your home at risk.

Speak to a broker to see if it is a solution.

Thanks, good to know and will definitely enquire further.

getmore4less

Whats the situation with the house he was living in.
does he have any liabitiy or equity in that.

you rasing a deposit with a requirement to have it paid back(loan) rather than a gift will be an issue for that option.

Whats the employment/income situation of son, business share with ex father where is that going? is the ex any part of this business? is that the house she is living in?