Taking over a parent's mortgage?

minicooper272

I'd like to understand the practicalities of taking over a parent's mortgage. The mortgage has 5 years left, with monthly payments of around £750 (totalling £50k outstanding).

My OH and I can't afford to take over the payments of £750 a month, however, I wonder about borrowing the outstanding £50k as a new mortgage over a period of 25-30 years (repayments in the region of £200, which we can afford).

We know that a bank should allow us to borrow £50k (based on recent mortgage in principle), but how does this work?

Thrugelmir

If £200 is all you can afford then you'll struggle to meet affordability criteria. Unlikely that repayments would remain at that level for another 25 years.

Will your parents remain in the property?

minicooper272

Sorry, probably badly phrased! We can comfortably afford £200, it means saving a little less each month. But £750 would mean tightening our belts a fair bit, and saving next to nothing, and of course, if one of us lost our jobs, we'd be in a real bind!

Annisele

Who will be living in the house? And who will own it?

You can't just "take over" a mortgage. If you want a new mortgage on the property, you'll have to own the property - which would mean either becoming joint owners with your parents, or buying it off them.

If you become joint owners, then any mortgage would have to be in their names too (which might restrict you as to term). If you buy the house off them, then most lenders would expect them to move out and you to move in.

Do you have an existing house and mortgage of your own? If so, it might be easier to borrow the £50k secured against your own house.

minicooper272

We'd basically be buying a 40% share in it, but we wouldn't live in it. Term might be a problem if it would be between the three of us, as the whole point in this would be to allow them to effectively retire due to deteriorating health. From what you say though, I wonder whether we could outright buy the house for £50k (even though it's less than the value) on a buy-to-let mortgage, and "rent" it back to them for a nominal amount? Or is that me starting to head down a dodgy path regarding taxes?

We just bought our first flat in August and haven't paid much off on it yet, so I don't think we'd be able to borrow against our own flat...

foxy-stoat

So you need a regulated Buy To Let with no cash deposit, you will need to charge your parents rent at 125%+ the mortgage payment figure, assuming you can get a mortgage for around £200 a month, they would need to take legal advice for "deprivation of assets" if your planning on buying the house at a reduced value. Factor in if your parents could not afford the rent, include allowance for stamp duty if applicable, Capital Gains Tax when you do come to sell, legal fees and income tax on the profits.

Far too many issues to cover if you want to help them in this way.

Can you not just give them £200 a month to help clear down the mortgage quicker?

Annisele

minicooper272 wrote: »

From what you say though, I wonder whether we could outright buy the house for £50k (even though it's less than the value) on a buy-to-let mortgage, and "rent" it back to them for a nominal amount? Or is that me starting to head down a dodgy path regarding taxes?

I don't think that's "dodgy" so much as (probably) impossible and (almost certainly) would end up unfair to your parents.

If you want to let the property to a close family member, you need a regulated buy-to-let mortgage (BTLs are usually unregulated). The market for those is relatively small, and you'd need to be able to show you could afford the mortgage even without any rent from your parents.

I think it's unlikely any lender would be willing to lend you £50k in these circumstances. If you were really purchasing the house for £50k with the rest of the equity as a gift, it might be possible. But it sounds like the true arrangement would be "in exchange for £50k and the right to live in this house for the rest of my life, I'll put your name on the deeds". Lenders wouldn't like that one bit, because it would make it hard to repossess if you stopped paying.

When you say you think a bank would lend you £50k based on a recent mortgage in principle, what exactly do you mean? Do you mean that when you bought your flat, you borrowed £50k less than your maximum? If so, then I'm afraid that won't help you when it comes to a second property; lending criteria for that is quite different.

It does sound like just giving (or even lending) your parents cash each month would be a simpler option.

minicooper272

Annisele wrote: »

If you were really purchasing the house for £50k with the rest of the equity as a gift, it might be possible.

This is sort of what I had in mind - the property would be inherited eventually, so it doesn't seem to be a ridiculous idea that the chunk already paid for could be gifted now instead of inherited later (we're under inheritance tax thresholds).

I'm just trying to get an idea of whether this is possible or not. Unfortunately it's a fixed repayment mortgage, so overpayment isn't possible, and we can't afford to slip them the full £750 a month, which is what I worry they'd need (I won't go into the full circumstances here, but this is not anything to with poor planning on their part, or commiting to more than they could afford).

For our own flat we borrowed £150k less than the mortgage in principle said we were eligible for, which is why I think a bank would let us borrow £50k, but as people say, this will also come down to whether the bank accepts the situation.

I think it likely we will need to enter in to a mortgage agreement between the three of us really, and hope they would base the term on our retirement age/life expectancy, and not their retirement age/life expectancy.