2nd property - purchase/borrowing options

silvercar

P3 has a secure tenancy in London, why give that up?

This 20 times over. You say P3 can't get a mortgage, yet you want him to give up a secure tenancy for a financial commitment that he may not be able to keep? Madness.

Does P3 have RTB? that may level the playing field somewhat.

lonestarfan

OP doesn't say why P3 can't get a mortgage. They say P3 is unable to get a mortgage on his own. Op - is that because he hasn't got a large enough income or because he has poor credit eg defaults?
If it's due to poor credit then there are implications for whether he can be part of the mortgage. He can't go on the property deeds if he's not on the mortgage.
Where's the deposit coming from? who is providing the deposit as that sometimes has implications.
P3 is part of a trio - one is a 7 yr old - is the other an adult? They may possibly have a claim on Person 3s share.

Thrugelmir

eaustin wrote: »

P1 & P2 do have a legally binding contract, it's just that P2 is not named on the mortgage.

Not just the mortgage but the title deeds. Unfortunately any private arrangement is of no consequence to a mortgage lender. As it's value is at best potentially questionable.

Cornucopia

The easiest way to approach it is to raise additional funds on the first property to buy something cheaper as the second property, and buy that outright.

That is relatively easy to do, and won't require finding a niche lender who is amenable to an unusual situation.

The other more straightforward option would be to look at a guarantor mortgage for the BIL.

lonestarfan

Cornucopia wrote: »

The easiest way to approach it is to raise additional funds on the first property to buy something cheaper as the second property, and buy that outright.

That is relatively easy to do, and won't require finding a niche lender who is amenable to an unusual situation.

The other more straightforward option would be to look at a guarantor mortgage for the BIL.

Sounds a good idea but what would they be able to buy in central London bigger than a 1 bed flat with equity in the existing property of £187000 and a salary of £65000. If such a place exists then that's a good idea or perhaps move out to outer london eg wembley etc
Although the op says that p1&p2 have £100,000 deposit so not sure if that's plus the equity. If it is then that added together should buy something possibly.

Cornucopia

Yes - I was assuming they'd borrow maybe £150k and add that to the £100k "deposit". £250k will buy a 3-bed house in the home counties (easily), or even in some outer suburbs.

lonestarfan

It's possible then although I would be concerned they're putting all their savings and their home on the line and it can be fraught with problems.

Op - what happens if bil gets ill and can't earn money so can't pay the mortgage, what happens when you want to move? It puts your life on hold.

eaustin

Thank you for your responses.

As suggested it may be simplest to buy the second property outright. I estimate that after clearing the current mortgage there would be a little over £50,000 available, this combined with a new borrowing against the existing property should give enough funds to buy a second property. I didn't want to give up my current low mortgage. At what LTV do you start getting access to better rates?

To answer some of the questions about why we would want to do it, well it's partly cultural, we want to help another family member. This might be slightly different to the traditional British culture. The intention was for P3 to be able to start investing in an asset.

I do not need to explain why P3 can't get a mortgage but I know what they can afford to pay as rent and I am happy to assess that risk.

Cornucopia

Whichever way you do this, you're likely to have to say goodbye to your very low existing rate. Either you'll be raising the LTV above the 60% level, where higher rates kick-in, or you'll be creating a new mortgage on unfavourable terms for the second property.

You probably ought to look at the tax implications, as well. IIUC, you can still offset rent received against a mortgage on a different property, if that's where the purchase funds originally came from, but it's more complicated than if the mortgage and rent relate to the same property.

eaustin

Can I ask you what IIUC is an abbreviation for?

Thanks for your observations. I can see a couple of options emerging.