Raising cash via mortgaging parent's house

Teddie24

Hi all,

I am looking to buy a house, and although I am a professional, I can only get a mortgage for circa £140k. My parents own several properties which they let out (these properties are owned out-right (ie no mortgages on them)). They have said that I can borrow £30k from these properties if I can somehow find an agreeable way of raising the sum on the back of these properties. So my question is:

Is there a way of mortgaging one of these properties to raise 30k (one property is worth £220k),

If so, and assuming the property is worth 220k, what sort of money/percentage am I looking at paying back over the next ten years to repay this sum.

Sorry if this is a bit "simple" but I'll fully admit I am completely new to the world of mortgages. Just to warn you, I am about to post a different mortgage question with regards to guarantor mortgages as well!

Many thanks in advance.

Dave_Ham

Yes you can do this, it will be quite cheap rates given the risk.

You may want to engage a broker though as many of the deals are only available through brokers...

£30k over 10 years with that loan to value will be very cheap indeed, but obviously they need a decent credit score and will depend upon their income, type of property and their ages...

PasturesNew

You might like to remind your parents that if they'd not cornered the market in houses .... they'd have been cheaper and you'd have more easily been able to afford one without the financial gymnastics.

holly_hobby

The mge on any of your parents BTLs will have to be in their name of course as they are the legal owners, not you, so assuming they are happy to have this legal responsibility for the mge, then this should be a fairly easy placement for a whole of market broker.

Sure with their porfolio they will already be aware of permitted offsetting of mge interest (the equity released will be classed as capital withdrawal for HMRC purposes).

Hope this helps

Holly

Teddie24

Thanks for the reply Dave, I suppose I could possibly raise more although I would be paying the repayments on this loan to my parents as well as my actual mortgage repayments (with the idea that they are not actually paying anything each month).

I will have to ring a broker and have a chat, presumably I would have to get a valuation on the house it would be secured on.

Pastures: don't worry, they are farm cottages which have not been on the market for over 100 years!!

Dave_Ham

No need for a valuation upfront, although you will require one as part of the process..

Good luck

Teddie24

Hi Holly, thanks for the reply, no we are pretty clueless when it comes to HMRC, is there a CGTax implication here at all? Can you eleborate on your post, whats the off-setting part about? Sorry to be a bit simple!!

holly_hobby

Teddie24 wrote: »

Hi Holly, thanks for the reply, no we are pretty clueless when it comes to HMRC, is there a CGTax implication here at all? Can you eleborate on your post, whats the off-setting part about? Sorry to be a bit simple!!

Oh gosh sorry Teddie, thats twice I've done that today (not explain myself !)

Ok ...

Your parents will (should !) be declaring their net rental income on an annual basis to HMRC for the a payment of due income tax.

When your parents receive their rental income for each property (which is technically a business), they may offset any permitted costs incurred in running the business (such as mortgage interest, management fees, essential repairs (list not exhaustive), from the gross rental income recd - to arrive at the net profit liable to income tax.

So, if they take out a BTL mortgage on one of their let properties, the mge interest charged by the lender, may be offset against the rental income for that dwelling, and thereby will reduce the actual amount of rent exposed to income tax. (however that's discounting the fact that if you're paying it, then technically its not actually a deductable cost to the business at all .... but then thats being super clean for HMRC and forum purposes .... ;-).

They are allowed to offset the mge interest for tax purposes, as the equity released is classed as a capital withdrawal out of the business.

There are some regs re when the interest won't be permitted as a deduction, but unless they bought the cottage for 30k or less (or it was worth this when it started being let), then it won't affect the permitted deduction of the new 30k mge.

CGT is the liability of the owners (Mum and Dad), and will be realised when the come to sell the property (subject to qualifying reliefs and allowances ) .... nothing for you to worry about in relation to the remortgage itself.

Hope this helps ... and I've explained ok for you ?

Holly x

Yorkie1

Teddie24 wrote: »

Thanks for the reply Dave, I suppose I could possibly raise more although I would be paying the repayments on this loan to my parents as well as my actual mortgage repayments (with the idea that they are not actually paying anything each month).

I will have to ring a broker and have a chat, presumably I would have to get a valuation on the house it would be secured on.

Pastures: don't worry, they are farm cottages which have not been on the market for over 100 years!!

Bear in mind that you will need to declare to the lender that part of your deposit is a loan, which may affect the overall affordability assessment from the lender / what it will lend to you.