Interest Only Mortgages

Charlie1985

Hi,

Hoping I can get some advice on our mortgage. Basically my father bought a house with an interest only mortgage about 10 years ago. The bank will require the mortgage to be repaid in full in about 5 years time. However my dad said he bought the house when he did due to property prices going up. I thank him for this as there is no way me and my partner could afford to buy this home at today's market value.

As the property is currently in my fathers name he has said to me and my partner to get a mortgage to take over the repayments as he will not qualify for a mortgage now due to his age. This is fine with us however just wanted to get some advice on the following:

Would my father have to sell the property to us at the market value or could he do it on what's owed on the mortgage?

Would we have to pay any stamp duty?

My partner also has some defaults on her credit file which are about 3 years old so I am assuming this could restrict us in getting a mortgage. Does anyone have any experience of what lenders we should approach and what the likely hood would be in us getting a mortgage given my partners defaults? Also would we have to pay a higher rate of interest?

Many thanks in advance for your advice in advance just want to get this sorted ASAP before we get to the end of the 5 years on the current interest only deal.

Trying_to_be_good

You can only get a mortgage if you own the property, so your dad would need to sell it to you.

Do you live there?
Does your Dad live there? Has he ever lived there? Does he understands the Capital Gains Tax implications?
What's your income?
What's the market value of the house?
What would your dad be prepared to sell it to you for?

As well as stamp duty and potential capital gains tax there may be potential inheritance tax issues.

If you can give more details people will be able to help :-)

Charlie1985

Hi,

Thanks for the response. Here arecthexanswers to your questions:

Yes we all live there currently as our family home

In regards to capital gains tax we are not familiar with this topic so any advice on this would also be appreciated.

The market value of the house is about £350k and the mortgage debt is £310k. My dad has switched is willing to sell it to us for £310k.

Between me and my wife we have an annual income of around £80k.

Hope this helps. How can we really minimise the fees and tax? Would inheritance be the best option? Also would lenders be willing to lend to us given my wife's past defaults on her credit file?

Charlie1985

*switched should read said - apologies typo

antrobus

Charlie1985 wrote: »

.... In regards to capital gains tax we are not familiar with this topic so any advice on this would also be appreciated....

There are no capital gains tax implications. The property is your father's home and it is your home. No CGT would be due if your father sold it to you. No CGT would be due if you subsequently sold it.

amnblog

Technically it is possible but there are two problems.


1. Dad needing to stay in the property (very few lenders will allow this)
2. Your Partners credit history is likely to prevent lending.

brit1234

What repayment vehicle (requirement for IO) has your dad got? If he hasn't committed mortgage fraud he can simply pay down the mortgage with the repayment vehicle and sell it to you at a lower price.

dimbo61

Well you have 5 years before you need to sort out a mortgage or sell the property !
This gives you time to start saving. Help to buy ISA.
Regular savers etc.
Make sure every bill is paid on time and any loans are paid off well before you apply.
Do not take out any credit agreements so no new furniture or cars.
Build up partners credit score and defaults will drop off in 3 years.
Work out how much a £310,000 mortgage would cost at say 5% and save that much every single month.
If you can't manage that then you can't afford to buy Dads house !
In 5 years you should have a large deposit and hence a smaller mortgage

P.S. £310,000 at 5% is about £1800 a month over 25 years.
So start saving £1,800 every month
In 5 years you would have saved £108,000 plus interest so only need a £200,000 mortgage

Charlie1985

Hi all,

Thanks for the great tips. Does anyone know any lenders we could approach given my wife's credit history? Seems pointless to continue paying interest for the next 3 years if we can get it into repayment from now. Thanks

nkkingston

If you go for a mortgage with adverse credit you'll end up with a high interest rate, so though it seems daft to keep paying interest now, it could still work out cheaper in the long run to spend three years saving money in a high interest account while paying off a lower interest mortgage.

steeeb

You should probably get in touch with a local all-of-market broker and see what they say and then weigh it up.

If your father will keep living at the property it might be a none-starter anyway. (Plus consider devaluation of assets if he needs care, potential inheritance issues).