Mortgage for fostering

Peaky

My wife and I currently own a semi-detached house worth ~£170k, with a mortgage of £40k. We have a small child, so both work part-time to allow for child-care responsibilities. We have a combined income of ~£30k/year (half from self-employment, half from employment), and are in our early thirties.

The adjoining house is likely to become available some time in the next few years. As a rough estimate, it might cost £125k (it's smaller than ours, and in worse condition). If we're able to, we'd like to buy it and combine the two houses into one. With the extra space, we'd be able to start fostering.

My question is: How much better would our financial position need to be for us to be able to get a mortgage to do this (interest-only would be fine)? I realise that our income isn't very high, but we could probably increase it a little, and I'm hoping that some of the following might help:

- the equity in our home, which is £130k at the moment, but would be more by the time we came to do this
- a good credit history, including mortgage repayments
- our ability to afford the mortgage (we're overpaying our current mortgage quite aggressively, and our current repayments would service a 30-year £150k repayment mortgage at 5%)
- the potential increase in income from fostering if we could get the mortgage (not that that's why we'd be doing it, but it would certainly make the new mortgage affordable)
- an expected pension lump sum that would clear the bulk of the mortgage capital if need be
- willingness to downsize once we'd finished fostering (perhaps splitting the house into two again) if we couldn't clear the mortgage

We're very keen to do this if it's possible, so are trying to find a way to make it work. Can anyone with a better understanding of the mortgage market than we have help us to come up with a plan?

Thanks.

dimbo61

You would be better off just buying a bigger house in the first place.
Far too complex for many lenders knocking two properties into one and could devalue both

Peaky

dimbo61 wrote: »

You would be better off just buying a bigger house in the first place.
Far too complex for many lenders knocking two properties into one and could devalue both

Thanks for the advice.

I realise that that's another option to consider, but more expensive houses in the area tend to have bigger rooms rather than more of them, so aren't necessarily suitable. We're also very settled in the area, and love our current house, so would rather not move if we can avoid it.

So I'd still be interested to know whether there's a way of making what I described in the original post work.

dimbo61

You have a great deposit with £130K equity already and I would look for a property upto £250K ( if you can get a £120K mortgage !)
You need 4 bedrooms or more and 2/3 bathrooms to stop the fight for the toilet/shower in the mornings

Little_Vics

have you started the process to become foster parents yet? It seems a big step to take before you've been approved.

Thrugelmir

Peaky wrote: »

So I'd still be interested to know whether there's a way of making what I described in the original post work.

Obtaining am interest only mortgage is questionable. As you would require a repayment vehicle.

Joining property together does not necessarily add value.

How would you fund the conversion work? To do a proper job.

Peaky

Little_Vics wrote: »

have you started the process to become foster parents yet? It seems a big step to take before you've been approved.

Yes, we've started the process. We can free up our home office in the short term, so will be able to start fostering and test the water with our current house. But if things worked out, we'd need more space further down the line.

Little_Vics

glad to hear it - we're almost ready to go to panel ourselves. Wishing you all the best.

minimoneysaver

I think you would struggle to find a mortgage lender to do that, as the final value of the single property, would be less than both houses. Doesn't sound like a good financial decision.

Peaky

Thrugelmir wrote: »

Obtaining am interest only mortgage is questionable. As you would require a repayment vehicle.

Joining property together does not necessarily add value.

How would you fund the conversion work? To do a proper job.

If we got an interest-only mortgage, then we'd repay using some combination of overpayments, savings, pension lump sum, and inheritance. Or if we couldn't, we'd downsize; we'd only need that large a house for that specific phase in our lives.

We're not concerned about adding value, just about getting a property that lets us do what we'd like to do. If it costs us money to do it, then as long as we can afford it, so be it.

We'd keep the conversion work as simple as possible, at least at first, but yes, we'd need to allow some money for that. N.B. The houses share a garden, and have connected cellars, and may have been one property at some point in the past.

Peaky

minimoneysaver wrote: »

I think you would struggle to find a mortgage lender to do that, as the final value of the single property, would be less than both houses. Doesn't sound like a good financial decision.

That's interesting. Is that how they'd look at it? I'd have hoped that they'd just look at whether the resulting property was sufficient security for the loan, and whether the mortgage was affordable for the mortgage-holder.

Re loss of value: Just a small factor, but whereas the purchase of a £300k house would be liable to £9k stamp duty, adding a £125k house onto a £175k house presumably wouldn't be, which would offset some of the loss of value.