Second Mortgage or Re-mortgage???

rizwany84

My father and mother own a freehold house worth £500k which they live in.

What is the best way to purchase a second property, a second mortgage?

Thrugelmir

rizwany84 wrote: »

What is the best way to purchase a second property, a second mortgage?

If the first let property isn't making you an after tax profit. How do you propose to fund the second property, i.e. raise the deposit?

holly_hobby

Is the house for you to live in or to rent out ?

Whether your parents can remortgage their home to provide you with a deposit, will depend upon their income with a term restricted to the lenders max redemption age.

Using Dads 25k as a deposit, will mean that you incur 25k more mortgage interest (although it is tax deductable off rental income) - and whether this will be sufficient deposit, or agreeable with Dad is something else (nb - if this is to be a 2nd BTL mge in your sole name, not all lenders accept gifted deposits).



Hope this helps

Holly x

holly_hobby

Ooh all sorts of possible issues with that ...

Firstly you won't generally find a mortgage lender that will allow the vendors to remain post completion, this is in relation to beneficial interest, and the difficulties they will have with any future possession order. But they could ADD you to the deeds and then you all apply jointly for an equity release remortgage (upto 4 mortgagors are permitted per mge app), and based on your income, which should circumvent any max age issues.

But, lets say you want to own this on your own, if they have no mortgage, and they transfer to you for nil return (ie you don't need a mge to purchase) ... generally lenders won't permit a remortgage (to release equity) for 1st 6 mths of ownership (which they may apply if you are simply added to the deeds as discussed above).

Deprivation of asssets, re them, with regards to any future bankruptcy or means tested benefits or care application (notwithstanding the existing BTL)

IHT issues (gift with reservation (GWR) - based on maket value of property at time of transfer and applicable IF their net estate on death exceeds nil rate threshold (which maybe upto 650k on 2nd death, on current rates).

There would be a way around this if their net estate may/will be exposed to IHT, which will involve they paying you market rent for their residency.

Other issues, but I feel the above may be enough to put you off.

Here if you want a further chat !

Hope this helps

Holly x

holly_hobby

Given the issues I've raised.

If you are added to the house deeds, and then want to source finance, this would be a remortgage.

Equity release to pch another property, will depend on the lender, but generally its not usually an issue (subject of course to meeting affordability and suitability).

If the property is let and self sufficient, under an AST - typically ignored my most (but not all) lenders.

TOE to include you on the deeds - conveyencer will assist, although you can do this direct with land registry (if there is no existing mortgage)

Subsequent remortgage - I would suggest a broker to assist.

If you want to later move out and get your own home, this mortgage will be included in any affordaiblity assessment, which may restrict you purchasing power. Also of course parents, as joint mortgagors, will also be jointly and severally liable for the mge debt, whilst the house will be exposed to your other creditors in respect of default - so a lot to think about.

Are you really that desperate for a 2nd investment property, as to involve your parents home and expose them to debt ?

Hope this helps

Holly

holly_hobby

Yes, holes in the plan if you can't raise sufficient equity to repay the debt on parents home when reqd (due to market conditions or other factors).

If there are void periods in your rental units, and you use your monthly income to maintain the mge(s), what's paying the joint mortgage with your parents ?

In which case how long could they sustain the mge on their and your home, to essentially supplement your rental portfolio ?

I simply don't understand the urgency to pch a further home to rent out, and involving your parents home to do so. When you have no deposit of your own and can't release equity from the existing let property you already have ?

I haven't gone into net yields, but the rental income simply being sufficient to svc the mortgage isn't really sound business sense (if thats the case), as the days of holding onto property for it to significantly escalate in value, are gone for the time being (unless you purchased well below market value or you're in an area such as inner London).

Have you actually discussed this with your parents ?

Hope to help

Holly x