Second home, mortgage advice

Cherry_Tree

Hi, I am new to this forum and would appreciate some advice.
I realise that I am in a very fortunate position as I own two properties outright and have now debts, so consider myself very lucky.
I have a four bedroom house worth approx £235000 and a small bungalow worth approx £155000 that I rent out and receive £550 a month from this.
I am self employed, with good books and predictable income currently receiving £2500 income before tax each month.
My family situation is difficult (I won't go into these complications) which means that I am only able to go away for a couple of nights at a time when I see that the situation will allow me to. I therefore can't book holidays in advance, which generally means that I don't get to go away. Also, I am frequently on my own and feel a couple of nights in a hotel could be quite a sad experience (?) Due to the health issues attached to the domestic situation stress levels are high...
The long and the short of it is that I've seen a property at a seaside resort just 1.5 hr away and I would really like to buy it for my own (and close family) use...as and when I could go. I work hard and would like to build in some quality time as I'm nearly 50.
The property is an apartment costing £190000. The Council tax on it would be £100 a month and the maintenance charge (which includes building insurance, water rates, gardening and building maintenance) is £200 a month.
I have been to see a Mortgage Broker, but whilst I feel he is very good and very knowledgeable, I wonder whether he shares my values. I was brought up in a very traditional way and you save until you and afford something, constantly think ahead, don't use credit cards and repay anything borrowed in anyway as soon as possible. The Mortgage Broker said that as he has gone older he now believes you should worry about today and face the future and it arrives.
Because my earning are not sufficient to support the mortgage my 24 year old daughter, who currently earns £16,000 as a part time teacher and is mortgage free, has offered to do a joint mortgage with me as she will potentially be using the property as often as I hope to. With her name on the mortgage we won't be restricted to a 20yr term either.
We have been advised that the best thing to do would be to loan £100000 from the rental property, then take a mortgage of £90000 on the holiday property. I have savings of £20000 which would remain intact to modernise the property. I think there is money to be made on the apartment if we do it up and then find we're not using it as often as we should.
Broker has suggested that we don't have sufficient earning to do a repayment mortgage and should do an interest only mortgage in my sole name. He has then said that if he were me when the full term has passed he would sell the rental property to pay the £190000 back. This doesn't sit well with me, as the rent from the little house was intended to be my monthly pension, when the time arises, as I'm self employed. I also feel that I would be paying more over the course of the mortgage and ideally wanted to pass the property onto my daughter rather than sell it at the end of the mortgage period.
Is there a solution to this we haven't thought of or is it simply that I should knock the idea in the head?
Many thanks in advance to anyone willing to respond this post.
P.S. I am aware of the stamp duty charges with it being a second home

MrJB

I presume your daughter is also aware of the SDLT rules? You say she's mortgage free, does she own or is she renting? If the latter then she will be liable for additional SDLT if she purchases a house for herself.

As you have no debts on either of your current properties you could consider remortgaging an element on each to effectively cash purchase the additional property, but I suspect your age may pose a problem for lots of lenders.

AnotherJoe

Because my earning are not sufficient to support the mortgage my 24 year old daughter, who currently earns £16,000 as a part time teacher and is mortgage free, has offered to do a joint mortgage with me as she will potentially be using the property as often as I hope to. With her name on the mortgage we won't be restricted to a 20yr term either.
======

This is a terrible idea. Your daughter ties up a fair chunk of her income for the occasional weekend away and then when she wishes to buy a house, best case finds she has to pay extra 3% SDLT and most likely case, wont be able to get a mortgage at all. Or worst worst case you get into a massive dispute with her because she wants to sell it to get out of this bind, and you wont.

If you are worried that being in a hotel is "sad" then rent a self contained cottage once in a while. Even if the minimum period for those is a week and you are only there for 2 or 3 days, the overall costs will still be way cheaper than buying a house you are hardly ever in and paying the interest on a whacking big mortgage.

Cakeguts

A parent should never ask a child to do this. This idea is to suit you but will make terrible complications for your daughter if she ever wants to buy another property or even any property. If you become too ill to work in the future your daughter will have to take over the mortgage repayments until you can sell the property and what happens if it is in negative equity? This is a great idea for you but a terrible idea for your daughter.

AdrianC

Cherry_Tree wrote: »

I have been to see a Mortgage Broker, but whilst I feel he is very good and very knowledgeable, I wonder whether he shares my values.

If that's an issue to you, then find a different broker who does.

I was brought up in a very traditional way

All very well and good, but you're a grown up now and make your own decisions and define your own values.

and you save until you and afford something

Which is not what you're doing here, of course. You cannot afford to buy this flat outright - so it is you who is choosing to not live by what you say are your own "values".

The Mortgage Broker said that as he has gone older he now believes you should worry about today and face the future and it arrives.

While he does have a good point - we've all lost friends and relatives too young - the decision on what to do is yours and yours alone. Make whatever decision YOU are comfortable with. Carpe diem.

Because my earning are not sufficient to support the mortgage my 24 year old daughter, who currently earns £16,000 as a part time teacher and is mortgage free, has offered to do a joint mortgage with me as she will potentially be using the property as often as I hope to. With her name on the mortgage we won't be restricted to a 20yr term either.

Her name would not just be on the mortgage. She would be a joint owner. Which, of course, would mean that your ultimate aim to leave it to her would be simpler, since she would already be part-owner, so some of the flat would be outside your estate. The flipside is that her part-ownership would be vulnerable to any future debts or divorce she may have, and she would be liable for the extra SDLT on buying her own property.

We have been advised that the best thing to do would be to loan £100000 from the rental property, then take a mortgage of £90000 on the holiday property.

You would be borrowing £190k. Obviously, that would be a 100% loan against this property, hence his advice to go with a 65% LTV on the rental (where your income is less of an issue, and the max LTV is usually 75%, but a 65% LTV will give a better rate, as well as currently having some tax advantages by being able to offset the interest against your profit) and 47% LTV on the holiday flat. Your main home remains mortgage-free, so if the worst happens and both mortgaged properties are repossessed, you retain that.

Broker has suggested that we don't have sufficient earning to do a repayment mortgage and should do an interest only mortgage in my sole name.

Which mortgage? Both?

He has then said that if he were me when the full term has passed he would sell the rental property to pay the £190000 back. This doesn't sit well with me, as the rent from the little house was intended to be my monthly pension, when the time arises, as I'm self employed. I also feel that I would be paying more over the course of the mortgage and ideally wanted to pass the property onto my daughter rather than sell it at the end of the mortgage period.

Unfortunately, you seem to be wanting to have your cake and eat it, whilst simultaneously shooting the messenger.
You simply cannot get the 100% mortgage you would need on the holiday flat. They don't exist. So you WILL need to borrow against one of the other properties - and the BtL makes most sense.
Your broker says the numbers don't add up for you to get repayment mortgages on the BtL and the holiday flat.
But your broker says the numbers DO add up for interest-only mortgages on both. At the end of those mortgages, you would either need to have some kind of funding in place, or face a large refinancing problem which would most easily be solved by selling one or both properties.

Of course, you would still have 20 years to work that exit route out, either by paying off some of the interest-only mortgage directly as if it were a repayment (subject to any penalties the mortgage may have), or by saving in an investment product intended to outgrow the interest payable - they used to be called "endowment mortgages", before they got unfashionable...

Seems to me that's your best solution.

AnotherJoe

Ps as well as the costs of the mortgage you'd be paying there is also the extra council tax, the utilities and ongoing maintenance.

Whose going to mow the lawn, tidy up do odd jobs ? Will that be what your weekend of leisure turns into ?

You could rent a luxury apartment once a month with no hassle instead of the complex set up you are proposing.

Or just get over it and book a luxury hotel with spa facilties occasionally. . You could treat your daughter as well and she wouldn't be tied up with an albatross of part ownership either.

Dan-Dan

all this just to have a few nice weekends away?
It sounds like you are well positioned to just do that, rather than all this stress

AdrianC

AnotherJoe wrote: »

Ps as well as the costs of the mortgage you'd be paying there is also the extra council tax, the utilities and ongoing maintenance.

Whose going to mow the lawn, tidy up do odd jobs ? Will that be what your weekend of leisure turns into ?

Re-read the OP. These are costed.

AnotherJoe

AdrianC wrote: »

Re-read the OP. These are costed.

Missed that, thanks Adrian - so, she will be paying at least £3,600 a year to cover the ongoing costs plus I'd guess around £4-5k a year on an IO mortgage.

Lets say £8,000 a year. You could have a few nice weekends away on that !

( And not damage your "values" of not buying something until you've saved up for it which is a very strange comment to make when OP then talks about getting a mortgage ?)

tlc678910

Hi,
I'd like to suggest you consider a static caravan or log cabin type holiday home.

You would be able to have your "home from home" for yourself and close family but for 40K for example (which you could borrow against your let property) you could get a wonderful holiday home.

I would ask you to at least give consideration to the ethical side of buying a property in a seaside town to use for the odd night. This helps to make housing less affordable for local people while contributing very little to the local economy.

There are of course downsides to this choice. The holiday home will depreciate rather than grow in value over time and you will have site fees but in the balance of "live for today" versus your prudent future it achieves the same end goal of snatched holiday breaks but is more affordable and arguably ethical.

Tlc

Edit: I just popped the numbers into a mortgage calculator and 190K (interest only mortgage) at 2% costs £317 a month, at 4% (probably more realistic for buy to let mortgage) £633 per month, which is £7596 a year and £151,920 over a 20 year term while still owing the original amount.

Add the service charge and council tax (£3,600 a year) and you are up to £11,196 a year and £223,920 over 20 years. That is a lot of money for holidays!