Implications of a friend buying a house for me

nicepurpleshirt

Hi All.

This is complicated...I think.
I have asked my ex (the father of my daughter with whom I now have a great relationship with) to 'buy' us a house as I can't afford to.

Before you jump up and down with "WHAT?" - the mortgage repayments on the property would be made by me using part of the maintenance payments that he pays us each month, or by him simply paying us maintenance minus the repayment....he would have nothing to do with it financially - just his name on the contract.
However, I appreciate that he would have a huge loan hanging over his head, so here are my questions:

Questions - (I've never bought a house, so excuse me if this is all naive):
1. Would he struggle to buy a property in the future for him and his partner, considering that in already having said property, his outgoings are actually unchanged as it's his maintenance payments to us covering it. How would the bank see this?

2. His repayments are fixed, but mortgage repayments aren't?
He pays us £740 a month, I've looked at an interest only mortgage for say £250,000 and it's approx £300 a month repayments, so if interest rates were to increase, we would still have the extra £440 as a buffer?....

3. How long do fixed rate mortgages last for?

4. His maintenance payments will cease in 13 years time, but I suppose we would have to talk about what to do with the house then as I can't see myself being able to buy him out at that point...maybe he could convert it to a buy-to-let, but I've heard that the government take 40% of any profit on a sell and that the interest rates are higher..........

5. Can you see any holes in this idea? I'm sure you know of things I haven't even considered.
I'm not bothered in not owning the house myself - our daughter will inherit it....

Thanks in advance
NPS

jonesMUFCforever

With the new regulations now - this might not get off the ground.

nicepurpleshirt

Hi JonesMUFCforever,

what new regulations - would you mind clarifying?

[Deleted User]

The amount a person can borrow is restricted by their income, if your ex has an income of £50,000 and takes out a mortgage of £200,000 he would be unable to take out another mortgage as he would be at the limit of what he can borrow. Also as far as I know interest only mortgages are almost extinct now and those that remain have strict requirements, he would need to put at least £100,000 down as a deposit on a £250,000 property using an interest only mortgage... and if he doesn't plan to live in the property that would add further complexity. This is very likely to be a non starter.

For this plan to be viable your ex would need to have a high income, access to significant savings and you would need to be very lucky. Speak to a mortgage broker, they'll let you know if this is possible and how to proceed.

nicepurpleshirt

Thanks Citricsquid.

He earns 110K - let's forget the interest only mortgage then!
How much would approx monthly repayments be with the other kind then?

And if he took out a £220,000 mortgage on 110K, how much would he be left with - to be able to borrow...approximately...

Yorkie1

nicepurpleshirt wrote: »

Hi All.

This is complicated...I think.
I have asked my ex (the father of my daughter with whom I now have a great relationship with) to 'buy' us a house as I can't afford to.

Before you jump up and down with "WHAT?" - the mortgage repayments on the property would be made by me using part of the maintenance payments that he pays us each month, or by him simply paying us maintenance minus the repayment....he would have nothing to do with it financially - just his name on the contract.
However, I appreciate that he would have a huge loan hanging over his head, so here are my questions:

Questions - (I've never bought a house, so excuse me if this is all naive):
1. Would he struggle to buy a property in the future for him and his partner, considering that in already having said property, his outgoings are actually unchanged as it's his maintenance payments to us covering it. How would the bank see this?

Quite probably, as another poster has written already.

2. His repayments are fixed, but mortgage repayments aren't?
He pays us £740 a month, I've looked at an interest only mortgage for say £250,000 and it's approx £300 a month repayments, so if interest rates were to increase, we would still have the extra £440 as a buffer?....

Very, very few interest only mortgages are available unless they are buy to lets, and lenders for the residential mortgage products will want to have evidence of how the amount borrowed will be repaid at the end, and frequently have high salary requirements.

3. How long do fixed rate mortgages last for?

Many mortgages last for 25 years, of which the first 2-5 years might be fixed rate. It depends on the product.

4. His maintenance payments will cease in 13 years time, but I suppose we would have to talk about what to do with the house then as I can't see myself being able to buy him out at that point...maybe he could convert it to a buy-to-let, but I've heard that the government take 40% of any profit on a sell and that the interest rates are higher..........

You are assuming that he will have a residential mortgage initially, but this might not be the case. He will not be living there, you see ...

5. Can you see any holes in this idea? I'm sure you know of things I haven't even considered.
I'm not bothered in not owning the house myself - our daughter will inherit it....

Thanks in advance
NPS

To be honest, I'm not convinced that your idea is a starter.

He will not be in residence and therefore the chances are that he won't get a residential mortgage. If a BTL was needed, then the deposit requirement will be 25% and rent would probably need to be 125% of the interest at 6% pa.

If any money, or money in kind, changes hands then that will be treated as rent, so a BTL mortgage may be needed from the outset. He would also be your landlord, with all the heavy duties and responsibilities that that brings.

Wait to see what the brokers on here say, but if you get no further responses then the two of you would need to go to an independent mortgage broker to see what is possible. Your ex is likely to need his own legal advice about the possible scenarios raised here, because he is the one taking most of the risk - although if it was a BTL and you had no ownership in the property, you are permanently at risk of eviction if anything happened.

nicepurpleshirt

Thanks Yorkie - this isn't looking good is it!

Can I just ask - "125% of the interest at 6% pa" - I don't understand what that means....if the property is bought at £250,000 how much rent should he be charging then?

kingstreet

To justify a BTL mortgage of £200k, you would need the surveyor to assess the rental income of the property at around £1,250 per month.

The deposit would need to be 25% or more.

Many lenders will not offer BTL products to those who do not already own their own home.

If he is serious about this, he should speak to a whole market broker as much of this market is still broker-centred with specialist lenders who do not accept business direct from the borrower.

getmore4less

if you come at this from another angle

If you had been living together and OH bought a house for you to live in.
(would probably have not been to hard to set up)

You split up and then you continued living there with his child which he has to support it would in most cases not been a big problem.

Trying to get to that situation no will be much harder.


Does the ex even want to consider this

It will create a complicated setup.

if you pay his mortgage then the 40% tax on the interest payments makes a mess of the calculations.

buglawton

A BTL mortgage would be refused if the plan were to let out to a relative. Lender is not likely to like this arrangement either even if the buyer is not strictly a relative.

Thrugelmir

nicepurpleshirt wrote: »

.he would have nothing to do with it financially - just his name on the contract.

Totally the reverse of what you believe. Everything financial and total legal responsibility.