This is what I have - advice on what I can borrow please.

Jeffff_2

Hello,

I'm in a semi-unusual situation. My Mother died a couple of years ago and I now wish (as a first time buyer) to buy a house with my wife, step-dad and little brother (5 years old) to all live together.

In an ideal world we would buy a 3 bedroom house around New Malden for under £500k to avoid the higher stamp duty and look to build an extension in the near future. Whether we can afford this given our resources I'm not sure...

Cash we are working with:
Wife and I = £100k
Step-Father and Brother = £70K.

My Mother left her house - valued approx £160k to me and my three siblings, but my step-father retains the right to live in the property for the duration of his life. The will incorporates the STEP trust provisions which I understand in practice effectively allow us to use the property in any way we see fit with the agreement of all parties. The intention would be rent out the property with the proceeds going towards the mortgage - effectively my step-dad paying rent with the benefit of his life interest in the property. Any views on this appreciated.

My wife earns around £40K and I earn £30K and it has been indicated by mortgage adviser in the New Malden area that we could expect to borrow around 4 times out income: £280k

Adding this up: 100+70+160+280 = £610k

On this basis it would seem that what we seek to do is affordable - but there are some complexities and seemingly a number of ways this could happen. I've not included my step-dad's income from a pension £15K, I also earn an additional £5k/year through a self employed business.

A few of the issues/questions I see.

1. Should the property be sold, or can we get a mortgage secured on the owned out-right property? Is there any advantage one way or other other? A major advantage of securing the new property on the old is that it keeps some separation since at some stage, the value of the house will need to be divided between the 4 children. Presumably though, my wife and I could not use the house as security for the mortgage while in the current trust structure and it would have to be transferred to me.

2. How easy is it to get a mortgage with 3 people (4 if you count my under-18 brother). This seems quite rare and I imagine that my step-dad and brother would have to gift their shares of the deposit to me.

3. We may decide in the future we do not wish to live together and go our separate ways. I don't envisage this, but anything is possible. What is 'best practice' here and given our circumstances, what structure would be recommended?

Since there are 3 people's cash capital, one persons life interest in a property which in turn will later be divided between 4 people - it would seem that some compromises in terms of legal protection will have to be made if we want to buy this property and live together. The family are all on-board to do what is necessary to allow us to move across the country and buy this property together, but naturally I want to maximise legal protection for all involved.

Sorry this is complicated, and I realise I'll need to get some official advice, but any views or suggestions are very much appreciated. I'd like to research it as much as possible and keep the eventual legal bills down.

Many thanks!

dimbo61

Your step father and your 5 year old brother live in a house that is paid for and which he has a life interest in.
Why would they take the risk of selling if all 4 brothers/sisters agreed ? to live with you and your wife in a three bed semi with a huge mortgage and then live in a building site while you apply for and MAYBE get planning permission to extend (12/18 months)
Any solicitor would tell your step dad to refuse and stay in the house.
With a low income and young child I am sure he could claim CTB, CB, IS and maybe WTC.
You need to look for a property to suit your needs!
Wife is the main earner and may need time off for kids or finish work.

ACG

£160k property you dont want to sell... you cant include that in your calculation can you? You can raise money against the property but not 100% (typically 75%).

There are lenders who will allow 3 or 4 people on the mortgage - although in this case it will be 3 as your little brother is 5, he cant legally sign a contract... he can but only in certain circumstances and this isnt one of them.

This is not straight forward, I would suggest you sit down with a broker as I really dont think a forum is the ideal place for this. Your step dad should also get legal advice, nothing against you but hes giving up effectively a free property in order to take on a mortgage, that is giving his youngest/your brother less security so its important he understands what he is giving up.

Thrugelmir

Too many pitfalls to be advisable. Not least that when your step father dies what happens to his estate if he's moved in with you?

Annisele

Jeffff wrote: »

Cash we are working with:
Wife and I = £100k
Step-Father and Brother = £70K.

My wife earns around £40K and I earn £30K and it has been indicated by mortgage adviser in the New Malden area that we could expect to borrow around 4 times out income: £280k

Adding this up: 100+70+160+280 = £610k

Nope. As others have said, you've added in money that you don't actually have. If you don't sell the house, you can't include its £160k value in your figures. There are also problems with the "gifts" you're talking about; a gift is only a gift if its given free and clear with no expectation of a return. Money handed over in exchange for being able to live in a house is on the face of it rent.

1. Should the property be sold, or can we get a mortgage secured on the owned out-right property? Is there any advantage one way or other other? A major advantage of securing the new property on the old is that it keeps some separation since at some stage, the value of the house will need to be divided between the 4 children. Presumably though, my wife and I could not use the house as security for the mortgage while in the current trust structure and it would have to be transferred to me.

I don't think you and your wife will be able to borrow against the property as things stand (but I'm not an expert in this area, so treat everything I say with a large pinch of salt). That's because any lender would want to be able to repossess if you stopped paying - but since your stepfather has a prior life interest, they wouldn't be able to.

I'd also be surprised if you could get the property transferred to you. If your adult siblings and stepfather want to gift you the property (and disinherit themselves) they can do that if they want. But your five-year-old brother won't be able to give you his share, because in law he's not old enough to make that decision. (In theory you could try asking the court for an order that he gifts it to you, but I don't think you'll get far with that).

Whether the current trustees can borrow against the property is another question. I don't know the answer, but even if they legally could I don't see how it would help you very much. The trustees would still be required to use the money in the best interests of the beneficiaries, and that gets messy if their interests conflict.

2. How easy is it to get a mortgage with 3 people (4 if you count my under-18 brother). This seems quite rare and I imagine that my step-dad and brother would have to gift their shares of the deposit to me.

If one of the four people is under 18, it's just plain impossible.

In three names, it is theoretically possible - but I think it would be messy, and you might well find you can borrow less in three names than you and your wife could in two.

Many (most?) lenders won't lend beyond the age of 75 - which means that the mortgage term must end before the oldest applicant reaches that age. You and your wife might well be able to afford £280k over a 25 year term, but that says nothing about how much you could borrow over 10 years.

It's unlikely your brother would be able to give you his money (see above).

3. We may decide in the future we do not wish to live together and go our separate ways. I don't envisage this, but anything is possible. What is 'best practice' here and given our circumstances, what structure would be recommended?

Honestly, I'd recommend you don't go near this plan with a bargepole.

Failing that, I'd suggest separate legal advice for all parties involved (probably including the five-year-old).

Jeffff_2

Thank-you for the replies. As I said, complex and answers so far not as promising as I initially thought - but straight talking is fine and has definitely helped.

Dimbo61

Your step father and your 5 year old brother live in a house that is paid for and which he has a life interest in.
Why would they take the risk of selling if all 4 brothers/sisters agreed ? to live with you and your wife in a three bed semi with a huge mortgage and then live in a building site while you apply for and MAYBE get planning permission to extend (12/18 months)
Any solicitor would tell your step dad to refuse and stay in the house.
With a low income and young child I am sure he could claim CTB, CB, IS and maybe WTC.
You need to look for a property to suit your needs!
Wife is the main earner and may need time off for kids or finish work.

Currently we all live in Devon, in separate houses in the same village. My wife and I are moving to London for work and my step-dad and brother wish to move with us. My wife and I are very close with my brother, I am 25 years older than him, almost second parents and have been of support to him and step-father since our mother died. The benefit of being in the London area (where my step-father can more easily find work) and the on-going family support are their prime reasons that they wish to move. We also have a wider family network there we can be close to - whereas my step-dad and brother have no real links to Devon and after we move, no need or desire to remain.

Hopefully that provides some context and explains why we are collectively keen to make a variant of this plan happen.

The importance of sitting with a broker/solicitor for proper advice as well as the importance of all parties getting independent advice is noted.

Rather than dealing with each reply, and taking this the following as (perhaps) representative:

Honestly, I'd recommend you don't go near this plan with a bargepole.

Being that leaving my step-dad and brother in Devon is also a situation that we don't wish to go near with a barge-pole, I'd be interested to know what people would do in our situation.

Many thanks.

kidmugsy

Jeffff wrote: »

I'm in a semi-unusual situation. My Mother died a couple of years ago and I now wish (as a first time buyer) to buy a house with my wife, step-dad and little brother (5 years old) to all live together.

Try this with your lawyer. The three adult beneficiaries, plus someone acting for the minor, agree to sell the house, followed by an agreed payment to stepfather in compensation for his loss of residence rights. That way you realise your capital, step-father builds up his capital, and there's some money put aside for the wee boy's future, to be managed by trustees. (You and your wife?) You can all go off and live in London, spared the vexation of managing a house in Devon. If step-father wants to lend you some money towards building an extension that's his shout.

Annisele

Are the £30k/£40k salaries that you and your wife have your actual current salaries, your salaries from the London jobs you've already agreed, or something else?

If the £280k you've been told you can borrow is based on salaries you'll have when you're in London, then you and your wife can probably take your £100k cash and buy a 3 bed property in New Malden by yourselves.

Your stepfather probably can't afford to buy his own property in New Malden - £160k only really gets you one bedroom retirement properties there. If he gets a job, he may then be able to rent somewhere (possibly also using income from letting the Devon house). However, I don't think the Devon house alone would produce enough income to let him rent in New Malden. Maybe he could stay in your house (for free) for a bit, until he gets on his feet?

If he doesnt' want to live in the Devon house anymore, he might want to sell his life interest in it to your and your siblings. Valuing such an interest is a specialist area, but broadly you look at his health and life expectancy, think about how long he's likely to be around to benefit from the house and how much the benefit is worth to him, discount that amount to today's money, then start seeing what everybody will accept. The basic idea would be that if he took the lump sum he gets from selling his interest and invested it, he'd be able to use the money to pay rent on a similar property for the rest of his life. On his death, he'd have exactly £0 of the money left. (Though of course it never actually works like that; far too many assumptions). [Edit: crossposted with kidmugsy - I think we mean the same thing.]

Jeffff_2

Thanks - very interesting and potentially something we can work with

Are the £30k/£40k salaries that you and your wife have your actual current salaries, your salaries from the London jobs you've already agreed, or something else?

Current London salary for me, wife is currently still working in Devon but is job hunting, fair chance the eventual London salary will be higher, but unlikely to be lower.

I agree, I think the wife and I could manage to buy somewhere alone but while perhaps sounding unconventional, we wish to all live together. Sadly, buying a place big enough for all 4 of us (and envisaging us maybe having a child sometime soon) becomes unaffordable unless we get somewhere that (imo) isn't habitable long term for that number of people.

Regarding "selling" the life interest. That could work, especially if the money is eventually used for an extension. Any idea in ball park terms how the numbers might work out? £160k house, rental value £550/month, 30 years left to live. Presumably it is 160k minus the value of the life interest, then split 4 ways between the beneficiaries? With the my brother's share continuing to be held on trust for his benefit. (Myself, step-father and two sisters are the trustees).

In terms of getting proper advice - who is best to see? I was intending to contact the people that did my late mother's will. I also have an appointment with a New Malden area mortgage broker this Friday. I was thinking of cancelling it and exploring the legal side first... or will a typical broker have the skills to navigate this?

Many thanks!

amnblog

It appears you are the only one with a job in London Jefff.

That is the biggest hurdle to any lending level that gets you what you suggest.

You should rent first to make sure it works before the three of you 'trap' yourselves together in a new environment.

Jeffff_2

In terms of my wife's location - is it location itself that presents the issue for the lender? Or the fact that there are additional living expenses of maintaining two homes?

As of the end of this month, we will have given up our rented property in Devon and she will be staying with her parents (rent free) until she finds a job in London. Will this be a barrier to getting a mortgage?

We've been operating on the basis that she will wait until an 'ideal' job comes up in London - rather than taking any position that pays. Of course, if this will preclude getting a mortgage, then that will have a bearing on our plans.

Many thanks!