Help with second charge mortgage

Redvandevil

Hi
Please bear with me since this is my first post and not sure if I posted to correct forum.

Looking for some advice about buying a house for my parents so they are closer to where I live.
I have seen a property which we can purchase for £260k but would need another £40 - 50k spending on it so it works well for my parents. Both parents are 60 years old and have their own property that is mortgage free and valued at 225k.

I have my own property that is valued at just under £500k and I have £107k left on mortgage with 16 years left to pay. I am on fixed until 2018 with a early repayment charge of 5% and interest rate of 3.29%.

My parents are now living on their own since my younger brother has moved out with his job. I really need to move my parents closer to where I live since I can see my mum is not happy on her own. The issue I have is that the house I have seen has the potential to be a really nice house but they are not seeing this and are reluctant to sell there current house to move even though she really wants to be closer to her grandchildren. I have tried everything but she says she will be fine even though I can see she is not and is getting depressed every week.
I have therefore decided to take things into my own hand and want to do following.
I would like to buy the house and then get this all done up and then hand over keys to parents once done and complete. They will then sell their current home and move closer to us. I am 100% sure of this.

Sorry for long life story!!

My dilemma now is how do I purchase this property. I have around 80k saving that I can use to do the house up with. I now need advise on is it possible to get a Second charge mortgage on my house for around 230k on interest only using my house. I would then buy this house for parents and hand them the keys once they move in. They would then put there house on market and hopefully get between £200k and £225k allowing me to pay my second charge mortgage.

I know I really need to see a advisor but before I do this I wanted to see what other thoughts the experts on here had. I also have another brother who has his own house and is willing to help if required. His house is valued at £325k with 90k mortgage and his happy to do second charge if required and split the cost between two houses.
The house would be in mine and brothers name if this happened and once parents move in we would want to transfer the deeds over to them so how would capital gains effect us both???

Sorry for really long post but if anyone can suggest what we can do or advise if this is just a silly fairy tale for me. Job wise I am secure since I own my own company and been running it for past 15 years with good profits.

Thanks in advance

Sam

Senior_Paper_Monitor

Sounds potentially do-able subject to details of overall situation.

Be aware that second charges are not cheap - although dropping/changing by the day following some major legislative changes a few weeks ago as part of MCD (European Mortgage Credit Directive).

You definitely want to go to a broker on this and make sure they 'independent' (which under the new definitions, means they are able - and indeed must - compare and advise on both first and second charges rather than just refer seconds) - this is a potentially complicated case to get the best answer on..

antrobus

Redvandevil wrote: »

...The house would be in mine and brothers name if this happened and once parents move in we would want to transfer the deeds over to them so how would capital gains effect us both???....

You're going to have to think about stamp duty as well.

You buy a second home for £260k (no matter who it's for) and that's 5% stamp duty plus the extra 3% because it's an additional residential property. And then you have to pay another 5% when you 'sell' it to your parents.

It might be better to structure the transaction as one where the new property is in your parents name from the start, with you acting as a guarantor for any required lending.

Take advice.

Redvandevil

Thanks for advice so far, I know I will need to seek more in depth advice but all this helps. To add to the situation I really wanted to do the house purchase as a surprise and then give parents keys one all done but I guess they need to be involved from start if I am going to put in there name from the outset. Do ihave to sell house to parents? Can I not just gift it to them and would that still mean stamp duty??
Thanks

AnotherJoe

I know you mean well, but this could turn out to be a massive, expensive mistake. You are spending tens thousands of pounds and then essentially forcing your parents to move to a house they may not like despite you knowing best..

60 is hardly in their dotage, you write and treat them as if they are 90! I'd be p'd off if one of my kids said "OK Dad here's the house I've chosen for you now move in and sell your old place"

They are adults, treat then like that. So, if the reluctance is the specific house, then talk them through it, get the architect involved, have some 3d walkthroughs. Maybe they will get involved at that, suggest their own alterations, get involved in kitchen and bathroom choices etc.

Or find another house.

Or maybe you and your brother make up a certificate you give them that says something like "£100,000 move fee", and explain to them you are giving them this sum so that, added to their house, they can afford to move near the grandkidsa nd you'll help them. Thats still going to be substantially cheaper than buying a house, paying extra SDLT, renovating it, etc etcespecially if actually for whatever reason you are unaware of they dont want to do it.

But for goodness sake get their agreement first.

Senior_Paper_Monitor

I hadn't picked up on the 'surprise element' and had assumed that this would be a team effort / advice process.

Speaking as a 61 year old - I'd certainly take the bloody hump if it wasn't !!

Redvandevil

Thanks guys for advice and I completely understand what your saying about making sure the parents want the house. Long story but my parents had already seen house and we all agreed to buy the house and offer was accepted. We then was about to put there house on the market when they had second thoughts since they were really worried about how the finished house would look.
Anyway I have spoken to them today and told them I am willing to use my equity to help them buy house and build before they have to sell theirs. Will speak to an advisor next week and see what our options are. If they still don't want to move then I guess I can't do any more than this. Just hate knowing mum really wants to move closer to us but also very scared to take that step.

Again thanks for all your help and advice

AnotherJoe

So really it sounds much more that they don't like that particular house. In which case and don't take this personally, your idea to buy it and spend £40k to do it up and then spring a surprise on them as a fait accompli was an even worse idea than you'd explained !

So, either give up on that property and find one they will like, or as I said find an architect who can do 3D walkthroughs of what it will look like afterwards so they can really get a feel for what it will be like.

Redvandevil

Thanks anotherjoe, guess your right and will need to take a look at the whole picture again. I guess it makes no harm in speaking to an advisor and seeing what are options are and if something else comes up near us we can purchase.

tlc678910

Hi,

Although I'm sure your parents would love to be nearer to you and their grandchildren it sounds like they are reluctant to move. Moving is a big deal of course, assuming they have lived in their current area for some time. They may be worried about missing their house, their area or their friends and neighbors?

Why not ask them if they would like to rent out their house so that they could "try out" living near you? This might reduce their anxiety and reluctance to move. They could move into a rental themselves or somewhere you had purchased but know that nothing was irreversible and they would only have to let go of their old house if they felt ready to.

Tlc

AndrewSmith

To the OP:

This is incredibly risky and not necessarily as easy as it may appear. The main concerns are:

a) finding a second charge lender that will allow 'cash out' of the entire loan, of that amount and for the purpose of 100% purchase price of a property

b) finding a second charge lender under EMCD who will allow interest only for that amount, and that purpose

c) you are exposing yourself to a significant and very real risk that your parents may not want to move to the property thus you are then lumbered with it with a second charge mortgage (costing comparatively more than a first charge) on your main home

d) there is the added risk that your parents property may not sell quickly, may not sell at all, or may not sell for enough to clear the second charge loan

If I may offer a secondary solution which would reduce the exposure of risk to your main home if things go wrong, and also potentially cost you less by way of interest rate etc (obviously you need to seek professional advice here, as already said, from a broker who deals in both first and second charge loans)

You arrange a first charge loan on the proposed property you are going to purchase, utilising some of your £80,000 savings as deposit, to get the lowest loan to value possible thus the lowest first charge rate. There are a few lenders that now accept sale of the property as repayment vehicle and will do interest only.

Once the purchase has completed you then arrange a significantly lower second charge loan against the new property to raise the funds to undertake the renovation work. If there is not enough equity in the property you could attach this loan to your main home for a better LTV thus lower rate, however it is far less risky than a substantial second charge loan.

This way you are likely to get a far better interest rate on the purchase, minimise the charge against your main home, and reduce the complexity of administration should you need to sell the second property to repay the main loan if your parents decide not to move. Alternatively you could let out as a buy to let.

Second charge lenders do not have a direct to customer sales proposition. The only lender that did, Nemo Homeloans, has recently closed its doors to new business. Thus any second charge investigations will need to go through a broker.

Make sure you are dealing with a broker that has sound knowledge and experience in both firsts and seconds. Just because they have applied for recent permissions for both (to comply with EMCD to call themselves whole of market) it does not guarantee their level of knowledge and expertise in either area.

There are many first charge brokers that have, until EMCD, had never dealt with seconds and vice versa.

Also, if your chosen broker 'refers' you to another broker for the second charge element make sure they disclose to you any fees you have to pay, and what, if any, is the nature of the commission agreement between the first and second charge broker.

Arm yourself with the facts, explore ALL the possibilities, pitfalls and options from an objective and immotive point of view, then make an informed and educated choice.

Best of luck. :beer: