Parents need mortgage advice

ACG

Just because your parents say they can afford £750, doesnt mean lenders will say the same thing. I know what i can afford but i couldnt get the amount i knew i could pay without any difficulty even taking into account interest rate rises.

However, ive just done a quick calculation (on the BBC website) - £100k over 15 years at 4% interest is £750 a month. You might be able to get a lower rate but it gives you a starting point hopefully.

http://www.bbc.co.uk/homes/property/mortgagecalculator.shtml

theoretica

I think it looks perfectly possible, but also a complicated enough situation it may be a good idea to seek professional advice.

As they have a documented lump sum coming in the lender may be prepared to lend up to that amount interest only. It may be worth selling the rental house (even though it will seem cheap) to buy their new home (because it will be equally cheap) or as mentioned taking two smaller mortgages, one on the rental property and one on their new home.

Dave_Ham

Remembering the interest only element could be mitigated by the investment property and therefore an interest only mortgage would keep their repayments down and stay in budget.

In English, they could get a bigger mortgage on an interest only basis to stay within budget.

Obviously, the biggest they would get would be 5 x income.

Also, be mindful that banks are unlikely to lend 4 or 5 times income on a 15 year repayment term or less...

kidmugsy

"They also own another property which is mortgage free and rented out. (currently worth about £110k). Unfortunately that house has gone into negative equity (they paid £140k) so they don't want to sell it until the market improves."

LOOK, this reluctance to sell is mere superstition. The ruddy house doesn't know what it cost your parents. It's just an asset: they should be prepared to sell it for whatever it's worth if that helps them buy a house to live in themselves. It doesn't matter that some day in the future the let house might then be worth more - the house they are going to live in will probably become worth more too.



"Mum wants to buy somewhere fairly soon as she's not coping too well living in rented accommodation. "

WELL since the point of having wealth is to be spared anxiety, they should push ahead and relieve Mum's worries. Be clear: (i) a property they own and occupy themselves will be free of Capital Gains Tax when they eventually sell it. (ii) The rent they avoid paying out by virtue of living in their own owner-occupied house is not taxed. (iii) The pleasures they get by living in their own house are not taxed. (iv) The rent they receive from the let house is taxed.

In their shoes I'd be thinking of selling the house they let and putting the money towards purchase of the new house for themselves. With £135k in their pockets they should find it pretty easy to borrow about the same amount on a mortgage and get bargain basement rates. SO: put £15k aside for a rainy day, borrow £130k, buy a house for £249999. Then they can clear the debt in 5 years time with your father's pension lump sum. Hurray!

Biker_James

Many thanks to everyone who took the time to post.Some interesting and varied valid points to take into consideration here. Its refreshing to know there are many options available to my parents and when they do visit another mortgage broker/lender, they can go armed and equipped with that little bit more knowledge and assurance.

Whichever route they decide to take, professional advice will be sought prior to making any decisions but I can assure you, its certainly put my mothers mind at rest .

Cheers everyone, Jim :beer:

ScotlandM

So you buy house1 for $1
Bad things happen equally, everywhere and it is now worth $0.80
A drop of 20%

But you sell it, and buy house2 for $1
So you've taken a loss of $0.20

But... both house 1 and house 2 are going to increase in value at the same rate. So... lets use a crystal ball and assume after 10 years house 1 is worth $1. It has increased in value by 25%
Strange thing is house 2 has also increased by 25% and is worth $1.25


So, in total.
If you had kept house 1 you would have $1
If you had sold house 1, bought house 2 you would have $1.25
But with house 2 you also paid in $0.20

The total sum is a gain of $0.05 for selling and buying. But assume that to be the interest you would have earned on $0.20 in a bank for 10 years.



If all things are equal there is no harm selling and buying property now. The harm is if house 1 has fallen quicker than house 2 has fallen.
For example if all the expensive properties dropped in price quicker than the cheap properties it would be bad to sell an expensive house and buy a cheap one.

It would also be bad to sell the house, wait and then buy back into property IF house prices start increasing.

Final point, if any selling fees are based on a %, sell cheaper to pay less fees.
Worrying about the price of the house isn't right, all houses are down so it is all equal and normal.

ScotlandM