Guarantor Mortgage from parents over 70 (but have a large residual business income)

Darwin88

Hi,

First post, I've searched many forums and websites but can't seem to find any solid information on this subject. I'm posting this thread in the hope someone may be able to help me directly.

I'm self employed with a business income of around £2000 per month. I've never been a home owner before but my partner has, so we will not be benefitting from a first time buyers mortgage. My business is in its infancy - I don't even have 12 months accounts yet, so my income will probably be disregarded by a mortgage lender. My partner earns £38,000 per year, so her income is the strongest in terms of lender security.

We are looking to buy a £240,000 house with a 10% deposit. This means we will need to borrow over £200,000, more than my partners income would allow but less than our combined income would secure once I have mature accounting records.

However; my parents are business owners earning around £7500 per month and have offered to act as guarantors. Their business is a very unique model in an industry called network marketing, something which confuses a lot of people. Their business has been established for over 20 years within a global corporation which has been established for 30 years and turns over $2.5 billion dollars a year - it's a secure income, but one that needs consideration to understand.

My parents are in their 60's and 70's. Their income is paid as a royalty every month, averaging £7500. They do not pursue the business much any more, but their income still comes in. This income is an owned assett and is not limited to their lifespans, it is willable in full, which it is, to my brother and myself on a 50% each basis should they pass away.

My question is as follows:

- Do mortgage lenders accept guarantors over 70 if their income is a residual business income as apposed to a employed wage?
- Is their a way of taking special income streams and unique circumstances into account when applying for guarantor mortgages?
- Would the assets and future inheritance of an applicant be taken into account when assessing lending amount and risk of a mortgage?

I'm really struggling with this. An independent financial advisor informed me he couldn't advice me on a situation he does not fully understand - immensely frustrating.

In simple terms - wealthy older parents offer to secure a mortgage with their income, an income which will be available long after they have retired which would ultimately be inherited by the mortgage applicant after the parents pass away. Can this be used to guarantee a mortgage for someone with a weak financial position?

Thanks in advance for any help,

Rich

Thrugelmir

Is your business "income" profit or turnover?

Darwin88

Hi,

My business turnover is approx £2000 per month with a net profit of £1000-£1200.

My parents business turnover is approx £7500 per month with a net profit of approx £4000-£6000

I work in a seasonal industry, my income will always fluctuate but my parents is fairly predictable.

Thrugelmir

Your parents is of of no consequence. More a question of what's affordable on your incomes. With no track record for your business I would suspect unlikely at this point in time.

Darwin88

Thanks.

How can the guarantors income be of no consequence? I thought that was the point of a guarantor mortgage? From what I understand, the loan amount is calculated based on the combined income's of myself, my partner and my parents.

My partner has around £800 per month disposable income, I have around £1000. It's affordable right now, it's just the evidence of my income that will not be available for another 4 months.

I have read that in this case the lender would calculate a mortgage based on the additional parents income, name them as joint liability on the mortgage but leave them out of the house deeds - so when my business has a better track record their liability can be removed.

All this would depend on the mortgage lender understanding that although my parents are over 70, they still have a secure income. How do I explain this to a mortgage lender? Will they just say no because a pre-decided criteria list says ''not available to guarantors over 70" - that's the main thing I'm worries about.

What do you reckon? Thanks again.

Annisele

[STRIKE]Guarantor mortgages are for people with poor credit, not for people without enough income.

If you were earning enough to support the mortgage but had a track record of not paying for things (eg satisfied CCJs in the background) then you might need a guarantor.

The arrangement you're talking about - with your parents named on the mortgage but not the deeds - is a joint mortgage. Your parents would be a joint borrower, not a guarantor. As you say, that is likely to give you a problem as many lenders require all borrowing to be repaid before the oldest borrower is 70/75.[/STRIKE]

On your lower estimate, your income is only £12k a year (lenders care about profit, not turnover). Even added to your partner's £38k, you're pushing things slightly for a loan of £200k.

Edit: Sorry - as later posts explain, I'm wrong on the guarantor point.

Senior_Paper_Monitor

Sorry Annisele but that is incorrect.

These days guarantor mortgages are of little assistance in overcoming credit issues of the primary borrower.

They are to overcome lack of deposit or income on normal multiples - particularly applicable for 'young professionals' who expect to see a steady increase in future income. We often use similar structures with divorce/separation cases.

The OP's situation sounds a possible (age/nature of parents income will complicate) guarantor solution - although we tend to find other structures than 'published guarantor products' more suitable in many cases.

With a page 1 google organic ranking for guarantor mortgages we receive an enquiry or two a day for these, so I speak with some confidence on the above

Dave_Ham

Tough case indeed....

I would suggest that the typical guarantor mortgage may not be the best way forward, but you really need quality advice so expect in advance that any broker fee will not be cheap.

If by hook or crook you can get an extra 5% deposit, this will potentially open up more options at lower rates..

Darwin88

Thanks for all the replies, it's much appreciated.

We have an appointment with an independent financial adviser tomorrow. Hopefully he will be able to find a solution, however, I'd like to be as prepared as possible before hand.

I currently have a fair credit rating, based mainly on a lack of credit history. No bad marks, just a low history. I've been using a credit card for some months now which has a limit of £650, I'm using and paying off to up my rating.

My partner has £14,000 of debt which is paid off at £600 per month, she has never defaulted on any payments but her available credit leaves her with a fair rating too.

My partners income is solid - she's a primary school teacher at senior management level with options for deputy headship next year which will mean a further increase in wage.

I began trading in October 2012 and have a built a regular income to the amount stated in my previous posts over an 8 month period. On the growth I have already seen I predict a turnover of £4000 per month within the next 18 months, hopefully netting a profit of £35-40,000 per year. I have submitted the last financial year's books to my parents chartered accountant, would it be beneficial to ask him to produce a statement for the current financial year up until the point of application? Going on the growth pattern so far I expect to see a profit of £2400 this month - it's increased steadily since day one. Would this, with the addition of a growth forecast, aid my application?

Thank you for correcting me on terminology, I think a joint mortgage with my parents is the way forward, not a guarantor mortgage. Providing of course the lender understands that no matter how old my parents are, their business income continues, not to mention that should they pass away I would inherit that income anyway, thus vastly increasing my monthly income.

I'm sure some of you a thinking I should wait until my books are in order before proceeding but time is a serious issue. We want to start a family as soon as possible, we need more space for my business and thus need a bigger house, and we are looking to buy from a family friend who's offered us an unmissable deal on their house!

Surely there is a mortgage lender who caters to business owners with solid revenue who are beyond the typical age of mortgage criteria? If there are, does anybody know where to look? Perhaps our adviser meeting will shed some light on this issue but I would still like to have as much information as possible prior to the meeting.

Thanks again,

Rich

Thrugelmir

Darwin88 wrote: »

My partner has £14,000 of debt which is paid off at £600 per month, she has never defaulted on any payments but her available credit leaves her with a fair rating too.

So the question is then where's the 10% deposit coming from?

A debt of that level would a major concern to an underwriter. As at £600 per month net, that's around £12k of gross salary that's being used to service this debt.

Suggest that you tackle this first before considering a mortgage.

Darwin88

This still does not change the fact that my parents, should a joint mortgage be an option, have a minimum of £4000 per month disposable income to secure the mortgage should our own financial position fail to do so.

We have £24,000 made up of our own savings and a family gift.

My partners debt is a joint loan with her ex-husband, the result of a young marriage gone wrong. He has a legal order to pay £200 per month towards the debt, originally £19,000, until the amount is paid. For leverage purposes it is currently within our interest to keep the debt open for him to keep paying - he could declare bankruptcy (trust me, to get out of paying he would) and default the debt leaving my partner with £600 per month to pay instead of the £400 she currently pays.

If we were to pay the debt, we would be left with £10,000 which after the expense of the sale of my partners current house would leave us well short of a deposit. The current house is balanced at zero equity so there would be no money from the sale, only expense. This would negate the purpose of this application. We could get a mortgage on a cheaper house on our own, after another 6 months of books, without issue. But we have an opportunity to skip a rung of the property ladder with the help of my parents. Forgive me for prioritizing the desire to do this, our current economic climate is preventing many people from getting on the ladder in the first place, so why shouldn't we jump at an opportunity such as this? The money is there, it's stable, but because of box-ticking factors such as parental age we could be prevented from receiving help from my parents.

I don't want to get too distracted from the original line of questions - will any mortgage lender consider, based on the unique nature of the income stream, persons over 70 for a joint mortgage?