Remortgage Advice

andun84

I bought our council house along with my dad (tenant), my brother and my sister. Only 3 people could be named on the deeds so my sister wasn't named on the deeds but has contributed fully to the mortgage and my dad hasn't contributed to the mortgage but as he was the tenant he had to be on the deeds.

Anyway that was 5 years ago. The mortgage was for £23,000 of which £18,000 is left (10 years). My sister now wishes my brother and I to buy her out which we are happy to do. As house prices here (Northern Ireland) have risen sharply over that period the house is now valued at over 3 times it original value (£160,000).

Basically we will have to pay my sister £41,000 (discounts built into this etc which we have negotiated with my sister as she is selling to us and not someone else and plus she wants the money soon). When we add out share of the outstanding mortgage, £12,000 that takes us up to £53,000.

I have run a personal debt of £25,000 (yes I know how stupid that was and I no longer use my credit cards) of which I want to include as part of the remortgage therefore the total amount we are looking to remortgage for £78,000. I have discussed this my brother and he is happy enough that I include it.

My whole problem is understanding how this all works legally as my sister was never on the needs. I take I don't have to technically sell the house as the names of the deeds will not be changing as my sister was never named on them in the first place and such stamp duty isn't a consideration. Can I just hand this money over to my sister and if I do does that give rise to any tax issues. She lives in the Republic of Ireland therefore I need to transfer this in Euros just add another complication. I am unsure as to exactly what the process of a remortgage is. Do I contact a mortgage provider first or the lawyer whom I employed on the original purchase.

The mortgage is in my name with my bank and I would like to include my brother in the remortgage. How easy is it to add him and would that add a complication which isn't really necessary.

Any other advice welcome.

Thanks

silvercar

SOunds like you are being generous to your sister. The equity left in your house is 160k-23k=137k. A quarter of that is 137/4=£34,250. I don't see why you don't count your Dad as having a share as without him you would never have been able to buy it.

I take I don't have to technically sell the house as the names of the deeds will not be changing as my sister was never named on them in the first place and such stamp duty isn't a consideration.

Correct, unless you arranged some legal document which now needs to be cancelled.

Can I just hand this money over to my sister and if I do does that give rise to any tax issues.

Hand it over with a letter explaining what it is for. Get a receipt in case there is ever any arguement in the future. Only noticable tax issues would be inheritance tax issues if you and your brother didn't live for another 7 years. Is your sister living in this house? If not theoretically, your sister has a capital gains tax liability for a gain on a property she didn't live in as her principal private residence. In practice, as she was not on the deeds, there is little chance of her being caught out.

As all you are doing is remortgaging, the new lender should be able to arrange the legals for you.

Any new mortgage will be based on salaries/ affordability etc. If your brother is adding his name to the mortgage, this will limit his opportunity to get a mortgage elsewhere. But it should increase the size of mortgage you can jointly obtain. I can't work out whether you all live in this home or if you have bought it for your Dad to live in.

Any other advice welcome.

Anyone whose name is on the mortgage is jointly liable for repaying it. Anyone who lives in the house will have to sign that they understand they can lose their home if the mortgage isn't paid. Everyone involved therefore needs to understand the commitments of this.

Leon_W

All silvercars points seem pretty valid and the only thing I would add is that maybe you could look into the possibility of remortgaging onto a self financing buy to let so that would remove the problem of limiting your own personal borrowing.

andun84

Thanks for the responses. Just to clarify my sister does not live at home. My brother and I do. We don't include my dad as party to the sale of the house because the agreement was that he would have the right to stay in the house until he died or until he was no longer able to live independently (if no one else was at that stage living at home) and as such the issue of the proceeds of any sale doesn't arise so why complicate things although I can see that including him would be to my brother and myselfs advantage as her share would be 1/4 and not 1/3. That isn't what we agreed to so we will continue with the 1/3 share for her minus expenses of remortgaging, back payments for non payment over the last 7 months, discount because she is selling to another member of the house (part of our original agreement) and her share of the outstanding balance of the current mortgage. That why £41000 falls below 1/3 current market value.

Any new mortgage will be based on salaries/ affordability etc. If your brother is adding his name to the mortgage, this will limit his opportunity to get a mortgage elsewhere. But it should increase the size of mortgage you can jointly obtain.

That's sort of sorted things in my head. Hadn't thought about it from my point of view ie my ability to get a mortgage for another property later on. Think a joint mortgage is required here.

Anyone whose name is on the mortgage is jointly liable for repaying it. Anyone who lives in the house will have to sign that they understand they can lose their home if the mortgage isn't paid. Everyone involved therefore needs to understand the commitments of this.

There are 4 living at home. Me and my bro who own the house, my brother who doesn't and my dad. My dad has been happy with arrangement thus far and is aware of our remortgage and my other bro has only just moved back in again. He isn't planning on staying long term. The sooner he moves out the sooner I get my computer room back :T

All silvercars points seem pretty valid and the only thing I would add is that maybe you could look into the possibility of remortgaging onto a self financing buy to let so that would remove the problem of limiting your own personal borrowing.

Thanks for your reply but I don't really understand what you are saying. Would you mind explaining it a little more fully as I don't get what you are asking me to consider and given the amount of money involved I want to be sure that I understand fully what I am doing.

Where do you start with the remortgage? Do I contact my existing mortgage provider, HSBC, or do I talk to a mortgage broker such moneysupermarket.com or do I contact my solicitor first. Take it the mortgage company will send valuerers out. Don't need to spend money on that if they are going to do it and I know that the amount being borrowed is substantially less than the value of the house no matter which way the value it ie above or below (its never going to be valued that low).

Thanks again.

Leon_W

I don't wish to confuse you and didn't twig that you were living there. In that case (that you are living there) please ignore my post as it is a non starter.

All the best.

silvercar

You don't need to find a solicitor yourself. All the legal work of changing the mortgage to a different company is done by solicitors appointed by the new mortgage company. They will probably charge slightly more if you want your Dad's names taken off the deeds.

I would ask you current lender what they can offer you in terms of rates and amount they are prepared to lend. Post what they say on here, if you want an opinion on whether it is a good deal. Depending on the results you can then decide whether to stick with them or find a broker, you want one who is whole of market ( so he can look at a whole range of lenders) and preferably fee-free (they get commision from the lenders), more importantly find someone you are happy to deal with.

The amount they are prepared to lend usually depends on your incomes/ affordability.

Leon's point was that you can also get mortgages based on the rental income of a property ie if you were letting it out at market rents, the rental income would cover the mortgage payments so it would be self-financing. As you've now made clear you are living in the property I don't think this is an option.

andun84

Thanks for clearing that silvercar. Yeah that wouldn't work. Yep will give HSBC a call tomorrow and see what they say.

andun84

Thanks Leon W. No probs there. I didn't really make it clear but thanks for looking at my post anyway.

andun84

Ok met with my current mortgage provider, HSBC, and this is what they are offering.

All are based on £94,000 (won't borrow this much but it isn't a million miles away and for illustrative purposes really doesn't make a difference) over 30 years. For the month of April no valuation or mortgage fees are applied (normally £600 or more in total).

First Option: Tracker with normal bank account (my current account type):
Tracker - 0.74% over base rates (based on current base rate - 5.99%). The overall cost for comparison is 6.2% APR. Monthly payments of £563.34. No early repayment charges. Overpayments: Following receipt of any repayment or overpayment, we will immediately recalculate the amount that you owe and the amount of interest that you pay. This means that you will get the benefit straight away.

Second Option: Tracker with Bank Account Plus on my Current Account. This account attracts a £9.95 for first 3 months plus 9 months @ £12.95. After one year it can be cancelled and any special rate offered on Bank Account Plus membership would be applied for the life of the mortgage. Details are exactly as first option except the rate is: 0.54% above base rates therefore 5.79% based on current base rates and an APR 6%. Monthly payments of £551.30 per month.

This represents a saving of £12.04 per month (essentially taking out bank account plus would pay for itself in monthly payments in the first year and if cancelled then would represent a total saving over the life of mortgage of over £4,500 based on current rates). No other special rates were available that would save money on having Bank Account Plus.

Option 3: Fixed for 3 years @ 5.79% (after fixed period revert to standard variable which is currently 6.5%). Monthly payments £551.30 then after fixed £591.42. Early Repayment Charges: You will be liable to pay us any early repayment charge when you replay the whole or any part of the additional borrowing, over and above your standard monthly payments, during the fixed rate period. The charge is 1% of the amount repaid early for each remaining year of the fixed rate period, reducing on a daily basis. The maximum repayment charge you could pay is £3044.05. Overpayments: During the fixed rate period, up to 20% of your standard monthly payment can be overpaid without any early repayment charge. Any amount of that would incur an early repayment charge. Once the fixed rate period ends then overpayments of any amount can be made and no early repayment charges are applied.

Anyone with any opinions on the above offers.

Thanks

MarkyMarkD

Silvercar

Just out of interest, can you explain why there are no stamp duty implications when there is a transfer of equity such as removing the father from the deeds?

Thanks

MMD

andun84

MarkyMarkD,

Quite simple. We are not taking my father of the deeds so that doesn't arise. My sister is the one whom we are buying out and she was never on the deeds in the first place.