Borrowing money against equity held in my mum's house - is this possible?

annahavana

Hi folks - I'm new to the forum but have been reading Martin's site for a long time.

Here's my dilemma:

I have a very talented boyfriend who studied Interior Design for 4 years at Art School but who is currently working as a baker as he had enough of design and the stress/pressure involved. HOWEVER, being a (trainee) baker doesn't pay that well so my mum has offered to get some of the equity that is held in her house and lend us the money (temporarily) to buy a flat to do up and sell on.

The problem is I don't know if you can do this as it's not really equity release (which I know is a BAD idea) but it's not really a mortgage either (as it'll be getting paid straight back to her as soon as the flat is done up & sold on).

I've searched through some of the threads on this site but can't see this topic covered anywhere, can anyone help me out here?

Ideally we'd be looking to borrow about £140k max against a house that is probably worth about £200k. We'd only hope to have to borrow the money for say 6 months max (I've told him he'd need to work fast!)

Anyway, let me know if you can help. I'd really appreciate it,

Anna :cheesy:

kingkano

It is equity release and it is a mortgage? Your remortgaging to access the equity built up in the house. Not sure why you think its not equity release (commonly known as MEWing).

You personally cannot borrow the money. Only the owner of the house can. Assuming your mum doesnt have any mortgage on the property at the moment and has an income that can support the repayments of the borrowings then she can just go get a mortgage and give you the cash.

If any of the above isnt true then it gets trickier and you will have to investigage other options (maybe gurantor on a mortgage on the flat or something - not sure).

Some other things for you to consider before you do this. Research the market heavily first. Everybody has watched property ladder so there is already thousands of people doing what your proposing. This means bargains hardly exist anymore. Also consider what will happen if the market goes sour while your doing the flat up, you come to sell and can only get what you bought it fir (losing the costs). Will you be able to cover that? Or will you then be stuck with the flat in a falling market? (if we believe that prices will come down)

good luck!

annahavana

kingkano wrote: »

It is equity release and it is a mortgage? Your remortgaging to access the equity built up in the house. Not sure why you think its not equity release (commonly known as MEWing).

You personally cannot borrow the money. Only the owner of the house can. Assuming your mum doesnt have any mortgage on the property at the moment and has an income that can support the repayments of the borrowings then she can just go get a mortgage and give you the cash.

If any of the above isnt true then it gets trickier and you will have to investigage other options (maybe gurantor on a mortgage on the flat or something - not sure).

Some other things for you to consider before you do this. Research the market heavily first. Everybody has watched property ladder so there is already thousands of people doing what your proposing. This means bargains hardly exist anymore. Also consider what will happen if the market goes sour while your doing the flat up, you come to sell and can only get what you bought it fir (losing the costs). Will you be able to cover that? Or will you then be stuck with the flat in a falling market? (if we believe that prices will come down)

good luck!

I didn't think it was equity release because we wanted to pay the money back ASAP rather than using it as long-term income?

Totally take your point about watching the market. We're keen not to overstretch ourselves.

Any other advice would be much appreciated. Anyone ever looked at Equity Release before?

mystic_trev

Who's going to pay the Interest on the loan (MEW) you or your mother? What would happen if you couldn't sell the Property because the 'market' had turned? If you or your mother couldn't keep up the repayments she could lose her home as well as your 'investment'

Doozergirl

It's a straight remortgage. You remortgage with a product that has no tie-in and low entry and exit fees. If you explain what you're doing then any independent broker will be able to find you the right product. You concentrate more on the average of monthly payments with all the fees counted in, than you do at the actual interest rate (which will be higher than you would choose for your home)

But, Interior Design is far from developing. In fact, with a modest house (which £140,000 is going to be, pretty much anywhere in the UK) it's all about magnolia paint, the cheapest, nicest looking kitchen, a cheap bathroom suite and a few chrome accessories flung in. There is a very simple formula which you can't deviate far from if you don't to limit your market. But that's the simple bit. The complications come in finding the right house, at the right price against all the other people that want to give a house a bit of a makeover (Houses that are fully modernised but with bad fittings at anything less than a few thousand off the price of a fully modernised property just don't exist) knowing exactly what needs doing to the house before you buy it, getting your budget correct, your resale value correct and finding a buyer.

annahavana

Thanks to everyone for the replies so far. They're really helpful

To answer the questions posed:
1. The reason I didn't think it was "Equity release" was because we need to borrow the money for a short period of time (rather than using it for income for the future as most people looking into Equity Release are doing)

2. My mum has repaid her mortgage when she retired last year and owns a house worth about £200k

3. We (my boyfriend & I) will cover the repayments on the mortgage/loan while the development is being carried out

4. Re. overstretching ourselves, I'm really conscious about not doing that. The very most we would hope to get something cheaper by buying in an area on the fringes of Glasgow (within commuting distance). Max we'd be paying for a FLAT (not a house) is £110k and a max of £30k doing it up.

5. I appreciate it's not just a lick of paint that we'd be getting. My boyfriend is pretty handy at joinery and we have a few friends with trades so would hope to use them as much as possible. His Degree in Interior Design is FAR from the average "Changing Rooms"/Lawrence L-B type of stuff. It's basically architectural design. He's very keen to differentiate his 4 years at Art School from what is essentially styling (a very important but different skill)

6. A flat has just come up for sale in the building we live in.
It's about 30 secs from our flat which means he could spend as long as he wanted doing it up PLUS we already know lots about this building so don't have the usual concerns over structural safety/lack of knowledge of the neighbourhood etc. Any thoughts anyone?

clutton_2

Lets not beat about the bush - ""equity release"" - is yet another phrase for getting into more debt - in this case your mother to get into more debt.

As long as the house is in your mother's name ( a retired person) it is most unlikely that a lender will increase her borrowing to give her a mortgage of £140k - the first question they will ask is "how will she repay it?" and she will have to prove that she can. Hpw will she be able to repay it ? In her retirement can she prove a regular income to sustain that additional debt ? Lenders do not work on on "maybes" in the future as far as income goes.

if the house were in your names, or even joint names with mum, it might be slightly easier.

poppy10_2

How do you propose to cover the mortgage payments? Interest alone will be £700/month. Hard to do on a trainee baker's wage.

annahavana

poppy10 wrote: »

How do you propose to cover the mortgage payments? Interest alone will be £700/month. Hard to do on a trainee baker's wage.

We'll be able to pay it as I'm paid significantly more than him!

annahavana

clutton wrote: »

Lets not beat about the bush - ""equity release"" - is yet another phrase for getting into more debt - in this case your mother to get into more debt.

As long as the house is in your mother's name ( a retired person) it is most unlikely that a lender will increase her borrowing to give her a mortgage of £140k - the first question they will ask is "how will she repay it?" and she will have to prove that she can. Hpw will she be able to repay it ? In her retirement can she prove a regular income to sustain that additional debt ? Lenders do not work on on "maybes" in the future as far as income goes.

if the house were in your names, or even joint names with mum, it might be slightly easier.

Thanks for that Clutton, I'll look into her monthly income & will investigate putting it in both of our names. The only concern I had was that I already have a £160k mortgage in my name for my own flat.

Angela_D_3

So how much equity is in your flat, why can't you remortgage that rather than gamble with the only asset your retired mother has worked all her life for ?