Mortgage advice needed please

Enchilada_2

Hi

Please advise me if this is on the wrong board and I will move it.

My father has come up with a proposal for me that I need advice on.

His suggestion as I understand it is that he is offering me £15,000 for a 10% deposit payment on a house. His requirements are imo rather unrealistic (he lives abroad therefore may be a little out of touch). He wants a 3 bedroom property, East Anglia (he doesn't really mind where but I'm in Essex and no point in it being miles away so Suffolk/Essex preferable), semi-detached, village/semi-rural. I do it up a bit over, say, 6 months, I pay the mortgage (and my rent) in this time and HE moves in paying my mortgage as my "tenant". We sell it on in 5 years or so and I pay him back his loan. This is to get me on the property ladder which he says I need to do sooner rather than later. I don't have the money for a deposit. He has suggested I look at property auctions however in this area I can't find much online that meets his requirements and of course they only provide guide prices.

Dad has said that we need to look at mortgage repayments and has mentioned the possibility of "endowment/repayment mortgages (?), interest only mortgages and the new government scheme (?)". He says that approaching a mortgage lender may result in different outcomes for a "buy to rent" position and a "buy to live in". He wants to know what the monthly payments are likely to be.

He also suggested we could make some money by setting up a company in our name attached to the address and buy shares (??).

Most of this is completely over my head. If I had the inclination/focus to understand any of these things I might have had the gumption to save the money myself but sadly I haven't and my finances are unlikely to allow me to save enough in a short time. Dad wants it in MY name, not my partner's - my partner is not currently motivated to save for a deposit as he doesn't want to buy currently. He is however expected to chip in with doing the place up! I would likely have to get a loan to pay the mortgage on top of my rent for however many months. I am also unclear on who is paying for the renovation.

Would someone possibly be able to make this all a little clearer to me by explaining what an endowment mortgage is, why I would possibly consider an interest only one (I though they were super bad??) and what the general pros and cons of this proposal are? I don't want to pass up a great opportunity however there are so many conditions attached I'm not sure what I would gain at the end of it....

Thanks, Clare.

halesowenmum

Endowment mortgages aren't super bad, it's just that the regular payments only tackle the interest that you're getting charged. People go for these as the amount you pay each month is less than with a repayment mrtge. However, what you must understand is that you need to have an additional, separate investment of some kind, which is invested over the term of the mortgage with the idea that when the mortgage is due to be paid off, this investment will have matured such that it can pay off the actual balance of the mortgage which is the big bit that's going to be left to pay off (as you've hitherto only been paying off the interest). Does that make sense? The issue that's arisen recently is either people a. not having any investment product to pay off the mortgage capital at the end of the term or b. the investment not performing well enough and thus not being big enough to pay off the mortgage at the end of the term.

You'd need, I would suggest, to get the services of a good independent whole of market mortgage advisor to help you with the various options you're looking at.

In terms of setting up a company with shares as some type of investment, I'm not sure what your dad means or how he would envisage it making money on a privately owned home?

As with anything done with family, you will need to be VERY clear at the outset exactly what he expects you to pay for/him to pay for, tenancy terms, % ownership conferred at various stages, etc etc.

That's all the things I can give any advice on!

Enchilada_2

Thanks. What is the difference between an endowment mortgage and an interest only mortgage then please? Clare.

Foxy-Stoat_3

If you haven't approached an independent mortgage advisor I would do that first.

Find out if YOUR income alone will be enough to get a first time 90% LTV mortgage of £150,000. If the answer is no then you can put a stop right there. You may be able to get on the help to buy scheme with a 5% deposit providing you meet all the other criteria, by the sounds of this venture, it won't.

Buy to lets normally require a minimum of 25% deposit so if the maximum cash he can put down is £15K then it will limit the purchase price to £60,000 which I assume will limit to you to a shell of some sort, not knowing the price of property in East Anglia.

If your talking about getting a loan to pay a mortgage then I suggest this is a non-starter.

No idea about setting up a company to do up a house to sell in 5 years and float it on the stock market and sell shares.....doesn't sound like that will happen.....who knows what he was thinking about there???

Interest only mortgages are set up to purely pay the interest, endowment mortgages don't really existing anymore as they were set up along side the interest only mortgage to clear the captial, repayment mortgages pay down the capital as well as the interest. The term endowment would suggest he has been out of the UK mortgage game a while as many endowments didn't allow enough return to pay the original purchase price of the property at the end of the term as previously stated.

If you think you can fix up a doer-upper in 6 months then you will need £1200-£1600 for mortgage fees and legal costs, 6 months worth of mortgage payments at say £700 a month, council tax, water, waste, electric bills for 6 months, maybe as much as £7,000 before you buy a tin of paint/bag of filler and your time to do all the work in the evenings and weekends.

Yorkie1

You are not planning on living there so this will not be a residential mortgage for you. Therefore it's a BTL.

BTLs need minimum 20-25% deposit as noted above.

Furthermore, as the tenant will be your father, this makes it a regulated BTL - there are fewer of these mortgages around.

You'd become a Landlord with all the attendant legal duties and responsibilities e.g. gas safety certificate. Plus rental income to be declared for income tax purposes.

Even if you were to move in with your dad, and you obtained a residential mortgage on your own, you'd have to declare that the deposit was a loan rather than gift - otherwise that's mortgage fraud. The lender may also have a problem with the person who provided the deposit living in the property post-completion but not being on the mortgage / deeds, as it gives them difficulties if they need to try to repossess.

I'm not sure this is a starter, to be honest.