How to get a mortgage on this house?

onlywayisup_2

Hi all,

Wondering if you can help me with whats turning out to be a complicated motgage!

My husband and i are attempting to buy his mothers home. shes in her early 60's and is widdowed. My husband is also an only child. Her home is still the family home and she simply cant afford to live in it.

My husband and i sold our home and moved in to pay the bills. Thinking long tern neither she or my husband want to sell the property as it has much sentimental value and it a really unique home. Unfortunately its just not big enough for us all. We wanted to add an extension/granny flat/semi detached type thing on the side for his mum and live in the house ourselves. His mum thinks this would be brilliant but financing it is proving hard.

We are seeing a mortgage advisor on Sat but having done my research as it is an 'extension' and his mum is not technically moving out this proves to be a problem for the motgage companies. So far the only option we have came up with is a shorter term mortgage including his mum but that gives no flexibility with monthly payments etc as they will be high from the outset.

The house is owned outright and we are in our early30's.

Can anyone think of other ways around this or has been in a similar situation themselves?

Thanks for reading.

holly_hobby

I guess its currently just Mum on the deeds.

If so this will be restricted by mums income and her age.

You could effect a transfer of equity (TOE) to add Son (& you if reqd) to the deeds as legal/beneficial owners, and although his/your income would now also be in the mix (and even if affordable), your max term will still be restricted by Mums age, with the majority of lenders having a redemption age of 75 yrs (repayment basis).

There is however a lender whom doesn't have a restrictive age ceiling, but of course their acceptance and max term regardless, will be dictated by status and affordability throughout the mge term requested.

Putting that to one side, even if you are acceptable for a straight remortgage with them, they may well be a bit sniffy about an extension adding a separate annex/granny flat to the dwelling (as they may feel this will restrict future suitable buyers, esp if the property becomes the subject of a possession order).

Your best bet at the moment would be to sit down with a mge broker (the above lender I have referred to does accept intermediary business, so the broker should be aware of them) and for your broker to have a prelimary chat with the lenders underwriters, as to whether the reason for remortgage is suitable to them. If it is, you can then go down the status and assessment route (inc effecting any simultaneous TOE in adding son to the deeds, if currently just in Mums name, and his income is reqd to support the excercise).

An alternative arrangement withour any involvement of TOE to son, could be a lifetime equity release mge, with instead of interest roll up, it instead paid monthly over the term to effectively ring fence the debt and free equity to protect the property inheritance for your partner on Mums passing. The available LTV will be vary between 25 - 29% depending upon where she is in her early 60s, with an interest rate in excess of 6%, and typically hefty redemption fees - so yes given you will want to hold on to the property, its very much a list ditch solution, but worth raising nevertheless. An suitably qualified equity release adviser will assist with this enquiry.

Regardless of all of the above, don't forget updating of wills whether you secure a mge for this or not ... which may seem unnecessary with hubby being an only child, but speeds up the probate process if nothing else.

Hope this helps

Holly

onlywayisup_2

Thanks Holly.

Do you know if his mum was removed from the deeds yet still living there if that also applies?

If it matters his mum has no real income to speak of. Will soon be pension age but was a housewife so would just be both of our incomes for mortgage purposes.

holly_hobby

No, Mum coming off deeds but remaining resident causes vacant possession issues, and can bring about possessionary issues for lenders (on seeking a possession order) so they generally don't permit this, which is why I excluded it from my orig post.

As Mums income is low, Son (and you if reqd), would need to go onto the deeds under a Transfer of Equity arrangement (as although there are a couple of lenders whom pemit mortgagors not to be named on the deeds, the max term available with Mums age won't suit).

Your conveyencer can sort this out pre mge application. I would in the first instance though, go and see a broker, to determine if the lender in question will accept the reason for remortgage (ie annex extension), and if so, if Sons income is sufficient for the loan (given Mum has little) and if you also need to be added (upto 4 mortgagors can be named on the deeds and hold a joint mortgage), and if they will need your partner (and you if you're also added) to have been a legal owner following the TOE for a min 6 mths period, before they will accept the remortgage application.

I wouldn't effect any TOE unless you have positive confirmation of the above from the lender - given that there may be SDLT incurred if consideration re transferred value to Hubby which exceeds nil rate band.

As a side issue, and just to top and tail the TOE issue, any TOE Mum effects between Son/You - may be cited as deprevation of assets IF she/you later seek state funded care home assistance AND it is accepted or reasonable to accept that Mum/you knew at the time of TOE, that it was likely such a future applicaton would be made - this may not be an issue, but worth mentioning for thoroughness.

Hope this helps

H x

onlywayisup_2

Great thanks so much Holly youve cleared a lotup.

Do you mean stamp duty is incurred with TOE alone?

This will seem like a silly question but would matters be any different if mum moved out for a certain period as this has also been discussed before building work is completed?

As far as mortgage is concerned it would be just a property extension as thatis what the plans are for currently.

holly_hobby

Transfer of equity is essentially the same as a sale and purchase.

There is no os mge as we know, so generally Mum gifting the equity (for no condiseration ie not exchange for money, or transfering the share of an os mge) wouldn't normally attract SDLT.

However, I am not sure how HMRC would see the fact that Mum is essentially gifting the equity to Son, solely for them as joint applicants, to then effect a mortgage, as essentially her gift in the TOE will have been actioned for this reason, which may in turn be construed by HMRC as demonstrating "consideration" - now I may be over egging the pudding here i.e how would HMRC make the connection, and this should be double checked with your conveyencer/tax adviser.

Refer the attached HMRC guide for more guidance on TOE and SDLT ...... http://www.hmrc.gov.uk/sdlt/calculate/transfer-ownership.htm

Fe the extenson - as long as the plans don't include any self contained dwelling elements, such as a kitchen, then you may be ok.

As I say, time to speak to your broker and conveyencer to see what route you plan to take.

Hope this helps

Holly

jimmybrid

I'm trying to understand why it is that you want/need to buy the house in the first place. I don't particularly see an advantage to it, especially if it's proving difficult. You're already living there all together so what difference does it make whose name is on the deeds? Would it not make more sense just to get the finances in palce to build the extension you need?

holly_hobby

jimmybrid wrote: »

I'm trying to understand why it is that you want/need to buy the house in the first place. I don't particularly see an advantage to it, especially if it's proving difficult. You're already living there all together so what difference does it make whose name is on the deeds? Would it not make more sense just to get the finances in palce to build the extension you need?

They want to remortgage the property (which is unencumbered) to release equity to fund the project.

Hope this helps

Holly

Dave_Ham

A good broker will be able to pull this together and source what you need, whilst ensuring everyone is protected...

Good luck

onlywayisup_2

Thanks everyone.

Yes its how we plan on financing the extension. It will cost all in all around 120k as mum wants a car, new windows throughout, new gates etc so to save it all would just take too long to live as it is and its a pretty good deal for us so were happy to get everything done at once.

We will have part saved but the rest would be near impossible to finance any other way than a mortgage. Which is also near impossible it seems:p

I hope youre right Dave! We met this mortgage advisor with our first home so hopefully shel be able to help on Saturday.

jimmybrid

Sorry - missed the bit about the financing difficulty!