parents helping with mortgage

matt3c

hello everybody, I am here for your help!

I have been regularly reading these forums and they have helped me a lot in recent years so thank you very much for that! So onto my first ever question...

I am unable to get a mortgage at the current time due to past defaults and a lack of a deposit.

My parents have kindly said they would themselves take out a mortgage for me with a deposit (I would pay the deposit back in almost 3 years after a saving scheme matures) and whilst waiting for this I just pay the monthly payments.

The question is from all of the experience on the board what is the best way to do this? I don't want my parents to lose out on any money at all so if when I purchase the house off them when I can get a mortgage would the money I pay them just pay off there mortgage? is there a better way to do that??

If I pay 600 a month for 5 years before I can take out a mortgage, that's 36000. so in essence I would of paid 36000 off my own mortgage but its my parents so is there any better way to do that?


I have read many options online but I just want to know if there is anyone with any experience out there of doing this or something similar and what is the best way to go around it.

Thank you in advance

missbiggles1

matt3c wrote: »

hello everybody, I am here for your help!

I have been regularly reading these forums and they have helped me a lot in recent years so thank you very much for that! So onto my first ever question...

I am unable to get a mortgage at the current time due to past defaults and a lack of a deposit.

My parents have kindly said they would themselves take out a mortgage for me with a deposit (I would pay the deposit back in almost 3 years after a saving scheme matures) and whilst waiting for this I just pay the monthly payments.

The question is from all of the experience on the board what is the best way to do this? I don't want my parents to lose out on any money at all so if when I purchase the house off them when I can get a mortgage would the money I pay them just pay off there mortgage? is there a better way to do that??

If I pay 600 a month for 5 years before I can take out a mortgage, that's 36000. so in essence I would of paid 36000 off my own mortgage but its my parents so is there any better way to do that?


I have read many options online but I just want to know if there is anyone with any experience out there of doing this or something similar and what is the best way to go around it.

Thank you in advance

Are you sure that your parents are planning to give you an interest free loan for £36K whilst they're having to pay interest on the money they're borrowing on your behalf?

haf1

Is the house you are planning to purchase owned by your parents?

matt3c

no definitely not! I don't expect them to pay anything more than the deposit at all. I want them to pay the deposit and then give them back that money when possible. Regarding the money I paid I was wondering how much of the 36k would be paid off the mortgage? I feel like im struggling to explain this so I apologise haha!

Say the house is 100k. Then I will have paid 36k off that with interest being taken into account etc so I know its not 64k left. I wanted to know how I would then purchase the house and how much my parents would have to pay back roughly when I purchase the house. How would that be calculated? Or would I just be better off staying in rented property until I can myself get a mortgage

Thank you all and sorry for how i have explained this!!!!!

matt3c

the house will be owned by my parents.. they will buy it I will move in and then look to buy it off them a few years down the line

Thrugelmir

matt3c wrote: »

the house will be owned by my parents.. they will buy it I will move in and then look to buy it off them a few years down the line

Do your parents currently have a mortgage?

matt3c

Nope they paid off the mortgage in 2014

matt3c

also a bit more information, they are 48 years old both in work so wouldn't struggle to get the mortgage for the value of the house I am after but after reading other posts they may only get a mortgage length up until retirement age. This would not be a problem as I would purchase off them long before that time comes up

Annisele

Having the property in your parents name from the beginning might not be the best way to go about this. If you do it that way round:

* Your parents are likely to have to pay extra stamp duty when they buy the place (unless they complete before April). Second properties will attract a higher rate than you would have to pay for a first property. When you get round to buying the property, you might have to pay stamp duty on it for a second time to get it transferred into your name.

* Since your parents won't be living in the property, when they sell it to you they'll have to pay capital gains tax on any gain. (Depending on the amount of the gain and their other allowances, that might not be a problem - but it's worth thinking about). If you owned it, no CGT would be due.

* If your parents take a repayment mortgage, they'll have to pay income tax on any money you pay them over and above the interest. (And if they're higher rate taxpayers/near the HRT band, they might not get full tax relief even on the interest payments).

* Your parents will need a regulated buy-to-let mortgage, rather than the unregulated BTL they'd need if they were letting to an unrelated third party. The market for regulated BTLs is smaller than the unregulated BTL market, but in either case they'd likely need a broker.

Is it possible for your parents to borrow the full value of the new property, but secured against their own existing home (rather than your new one)? That might allow them to lend you the cash, secured on your property - and have you be the owner with them as your mortgage lender. That would get rid of some of the tax issues above, but would introduce wrinkles of its own.

matt3c

Annisele wrote: »

Having the property in your parents name from the beginning might not be the best way to go about this. If you do it that way round:

* Your parents are likely to have to pay extra stamp duty when they buy the place (unless they complete before April). Second properties will attract a higher rate than you would have to pay for a first property. When you get round to buying the property, you might have to pay stamp duty on it for a second time to get it transferred into your name.

* Since your parents won't be living in the property, when they sell it to you they'll have to pay capital gains tax on any gain. (Depending on the amount of the gain and their other allowances, that might not be a problem - but it's worth thinking about). If you owned it, no CGT would be due.

* If your parents take a repayment mortgage, they'll have to pay income tax on any money you pay them over and above the interest. (And if they're higher rate taxpayers/near the HRT band, they might not get full tax relief even on the interest payments).

* Your parents will need a regulated buy-to-let mortgage, rather than the unregulated BTL they'd need if they were letting to an unrelated third party. The market for regulated BTLs is smaller than the unregulated BTL market, but in either case they'd likely need a broker.

Is it possible for your parents to borrow the full value of the new property, but secured against their own existing home (rather than your new one)? That might allow them to lend you the cash, secured on your property - and have you be the owner with them as your mortgage lender. That would get rid of some of the tax issues above, but would introduce wrinkles of its own.

Thank you so much for all of this information. I am starting to understand it is not going to be as easy as I first thought! We are talking to a broker next Thursday so thank you for your help! If anybody else has any more information or experience on this please share with me on here! Cheers

tlc678910

Hi,

If your parents get a mortgage it might need to be a buy to let mortgage due to affordability issues. Banks don't usually let you have interest only payments on a residential mortgage any more so the house would need to be paid off at the end of the term. As you mention the term will need to be shorter due to your parents age so you can imagine that paying off 100K over say 10 years plus interest is going to be mean pretty hefty repayments. Your parents would have to prove that they (not you) could afford these payments. (please see Edit below!)

A buy to let mortgage can be interest only because the repayment plan can be the sale of the house (so it doesn't need to be paid off). Obviously with an interest only mortgage the amount you own will be the amount you overpay. So if your interest only payment was £450 you could overpay (or save towards a lump overpayment) you could pay off £150 if your budget was £600. This amount would increase slightly as the interest went down as you reduce the amount you owe.

If your parent's did get the house as a buy to let I think a more straight forward approach would be to to pay an agreed amount that they are happy with that covers the interest only payment and their expenses (insurance, gas cert etc) and leave it as entirely their house. They could overpay with their own money if they wish but it would be their equity. You could meanwhile save up/clean up your credit record to get yourself into a position to buy it from them in the future.

I think it's probably only worth considering if the interest only mortgage payment would be considerably cheaper than the rent you would pay for a similar property or you expect house prices to rise so quickly that they are moving further from your reach.

Edit - I have just spotted that your parents are only 48 so they actually could take a pretty long repayment mortgage. As someone else has suggested if they were willing to take this against their own home the purchase might be more straightforward otherwise they will be trying to get a residential mortgage for somewhere that they are not going to live. They would likely be more comfortable doing this if the new property was 100% theirs. Although stamp duty would be due on the purchase.

Good luck with it.
Tlc