Using my paid house as colaterall

darran2716

I have a 3 bedroom house which is his worth around £150,000 or so in this given market. It is completly paid for and I owe nothing on the home (years of saving). I have a slight issue as my mother-inlaw is currently residing in the home rent free and has for a few years as i live in Army accomm. I am due to leave the forces in the next couple of months. I obviously do not want to evict my Mother-IL. Can I use my current home to purchase another or will banks not take this into consideration? Any advice will be greatfully appreciated!

BigAunty

Not many family members expect to live rent free in their accommodation - any particular reason why she won't find her own rented accommodation, expects to be subsidised or is happy to see you struggle to get a home for yourself? Does she have too much capital to qualify for housing benefit, for example?

By the way, if she qualifies for housing benefit, there is no reason why she couldn't pay her rent this way if you are prepared to formalise the arrangement on a formal basis and operate it on a commercial footing. It is possible for tenants who are closely related to their landlords to receive housing benefit so long as

1. They do not live in the same property
2. It is not considered a contrived tenancy, one set up to take advantage of the housing benefit system.

You may struggle to convince the local council that the current situation is not contrived since you've never charged rent before and she had no previous liability to pay rent, might be easier if you buy the next property on a buy to let basis and move her there. Google 'contrived tenancy' to understand this complex area. I have heard that a decision to charge rent after not charging it before should not automatically rule it a contrived tenancy but you'll need to unearth the info on this.

GDB2222

See a mortgage adviser about an equity release loan, then use that as a down payment on the new place.

Pansy_Potter

I did something similar 2 years ago, mortgaged one property to buy another. Definitely see a mortgage adviser for advice, ours was invaluable. Only problem you may find is that your prospective mortgage supplier will give a very low value on your house and may offer say 60% of it's true market valuation to protect them against future fall in house prices. This could then leave you with a potential shortfall for your next house.

agrinnall

While it's not an area I have any expertise in I believe that I have read on here that it is not possible to claim HB when living in a property owned by a family member.

G_M

Maybe I'm being blind here, but where does the OP say or ask about HB? Or benefits at all?

The Q is about using a mortgage-free property as equity for a new loan. Perfectly possible.

See an independant mortgage adviser.

The mother may only be relevant in that raising a morgage on the property
a) puts the property at risk (repossession) and therefore puts the mother's home at risk and
b) the mortgage lender may require the mother to sign a declaration so that in the event of repossession (see a above) the lender could evict the mother.

Road_Hog

darran2716 wrote: »

Can I use my current home to purchase another or will banks not take this into consideration? Any advice will be greatfully appreciated!

In my experience, no they won't.

I was in the position, many years ago (when the housing market was better), of owning a home, that had about 50/60% equity and tenants through a letting agents with books (income documented) of the rental income.

When I went to buy another property, they refused to acknowledge the income, the equity, but did deduct the outstanding mortgage from what they would lend me.

It took a good mortgage broker to help me out, but nothing from the other property was included in my borrowing allowance.

tim123456789

agrinnall wrote: »

While it's not an area I have any expertise in I believe that I have read on here that it is not possible to claim HB when living in a property owned by a family member.

It is possible, but V difficult

tim123456789

darran2716 wrote: »

I have a 3 bedroom house which is his worth around £150,000 or so in this given market. It is completly paid for and I owe nothing on the home (years of saving). I have a slight issue as my mother-inlaw is currently residing in the home rent free and has for a few years as i live in Army accomm. I am due to leave the forces in the next couple of months. I obviously do not want to evict my Mother-IL. Can I use my current home to purchase another or will banks not take this into consideration? Any advice will be greatfully appreciated!

I'm not sure what you think you will achive by doing this.

It won't increase the amount of money that the bank are prepared to lend to you for any given salary.

tim

BigAunty

agrinnall wrote: »

While it's not an area I have any expertise in I believe that I have read on here that it is not possible to claim HB when living in a property owned by a family member.

The Shelter website has a good basic summary of the position on HB and relatives.

When the landlord and tenant who are closely related live in the same property, HB is not permitted. In this scenario, the tenant is expected to pay towards their keep out of their existing income (employment or benefits).

When the landlord and tenant who are closely related live in different properties, HB is permitted so long as it isn't considered a contrived tenancy. For example, when the landlord doesn't charge rent when the tenant is in employment but does when they are eligible for benefits.

This kind of tenancy does come under closer scutiny by the council.

somethingcorporate

tim123456789 wrote: »

I'm not sure what you think you will achive by doing this.

It won't increase the amount of money that the bank are prepared to lend to you for any given salary.

tim

Except if they can raise finance from it it will give them a deposit for a new place.