Need some reassurance

Ulti

Hi All,

I'm planning on buying a house with the help of my parents and needed some reassurance from you experts to make sure what I'm doing is right.

If the questions I ask are too elementary and wasting everyone's time then please point do me to a basics guide and I'll be happy to read it!

Background:
I graduated back in 2014 and worked part time till I found my first job in late 2015. Since then I've had a few pay rises on the way and my latest gross salary is £41k.
I have around £40k savings at the moment and I am a first time buyer. The house we've put an offer on will be costing £357k but my parents will be gifting me £135k for me to place as a deposit. (I believe they will need to fill in a Gift Letter or something, forgot the name). I am planning to put down £32k myself and then again, my parents will help me with stamp duty, solicitor fees, surveyor fees and any other costs involved in the transaction. This means I would be borrowing £190k. I want to keep £8k myself for a rainy day/holidays/personal spending.

I noticed generally banks only lend 4.5x gross salary so we've spoken to a couple of brokers and they say that borrowing £190k should not be a problem. However the broker we planned to continue with that offered a 2 year mortgage on 1% which sounded good but she said the minimum term I would be able to take is 25 years. Looking at my past statements I can see that I can comfortably afford to pay a higher repayment per month so I was thinking of a 15 year term but I could not find any brokers willing to offer that. The broker that we've been thinking of using is also rather pushy on the Mortgage Insurance, and House Protection Insurance (Life and CIC cover along with IP) and working in the insurance industry myself, I can see that the premiums she's charging does not seem to be too competitive to what I can get direct myself, not to mention I'm relatively sure I don't need or want it. (She quoted around £100pm). One good thing she did say was that every year I could repay up to 10% of the mortgage without any charges.

So essentially what I'm thinking of doing is:
- Going through with the broker's suggestion with a 25 year mortgage for now.
- Repaying up to 10% a year (unrealistic but possible further down the line)
- Remortgage/review after 2 years to see if I can reduce the term
- Skip out on the insurances if they're optional and not compulsory.

I would be grateful if someone can confirm what I'm doing is the right thing for my financial situation.

Many thanks.

Boredatwrork

- Going through with the broker's suggestion with a 25 year mortgage for now.
- Repaying up to 10% a year (unrealistic but possible further down the line)

The mortgage term is largely irrelevent, if you are paying as much as you are financially able to pay back each month. The term can be changed as and when you remortgage at a later date, it's really not worth worrying about.

Saying that, a longer term means less amounts you have to pay each month, which is handy if you had a financial issue in the future, the important thing about that however is the longer the debt the more interest is added so the important tip is that you suppliement the extra cash each month as over payments (without hitting your limit, if that becomes the case, then it is a good time to reduce your term to allow more standard payments each month)
.
Basically this means the overall payment would be the same for you, but in an emergency financial situation (job loss) you wouldnt have to cough up so much each month as you could drop the extra overpayments (this is the reason some people actively choose the longest term they can get) - I hope that makes sense.

- Remortgage/review after 2 years to see if I can reduce the term

This is pretty standard fopr some people. Many people do this until they hit the lowest LTV (60-65%) for the best rates.
Obviously nobody has a crystal ball in regards to rates rises/drops so its a gamble, but thats the way its always been. The other thing to factor here is your house value going up or down which could affect your LTV all by itself. either way the aim is to get yourself onto the next LTV in the most efficient way and if you can for the next time you remortgage.
If you are ever unsure about what the bank views your house price up or your LTV etc, you can always call them, ask and find out in a few mionutes (just a bloke in a call centre, not a big scary bank manager).

Skip out on the insurances if they're optional and not compulsory.

Some are not worth the paper they are written on, buildings and contens is compulsory, life insurance is the most common, beyond that up to you, your employer or bank might offer you a better deal on somethings. Just read the small print.

Ulti

Thank you very much, that advice is perfect and exactly what I wanted to hear!

dimbo61

Right you are a First Time Buyer so no history
Second the bank of Mum and Dad are " giving you £135,000" so that is another issue !
You are borrowing the max allowed 4.5/5 X income.
You only want a 2 year term so what happens if rates are 3/4% in 2 years !
Your not interested in taking out insurance !!!!
Please take out Life Assurance Level Term ( shop round I used Cavendish online)
No problem in getting a mortgage ?

Ulti

Thanks for the more cynical view.

I do have a good credit history from what I've checked (Experian).
Actually I'm buying this house for the whole family to live in. We are still renting at the moment but we've decided to finally buy but we're just putting the house under my name and the mortgage too.
If rates are higher than oh well, but I will see if I can get the mortgage fixed for longer?
What's wrong with not being interested in taking out insurance? This house isn't just for me. It'll be my parents, myself and my sister. It will be mainly me paying for it, but my parents will ultimately pay for most of the fees, I'm only covering the mortgage really. In the worst case scenario my sister can contribute too but she hasn't got a graduate job yet and won't graduate till later this year.
I've heard that if I fail a mortgage application, I would have to try again in 6 months as it'll hurt my credit rating a lot. Does that mean if I try more than once in 6 months it's most likely going to straight on fail?

da_rule

Are you sure you want to buy a family home? What happens when you want to settle down and have a family? Are you really going to evict your parents? Also, as soon as someone starts contributing towards the upkeep/cost of a house after purchase they could gain an interest in it regardless of whether they are on the title or mortgage.

Would you not be better off, if you go with this idea, to buy with your parents? That way any income they have can be used in the mortgage calulcation. They can then, if you buy as tenants in common, gift you a larger share of the house at a later date.

Also, as well as them signing a gifted deposit declaration, if they are all going to move in with you on the day of completion they will also have to complete an adult non-owner occupier declaration too.

In terms of insurance, as long as you have enough to cover the cost of the mortgage then that is generally all that is needed. Critical illness/injury insurance could also be an idea in case you can't work.

Harryp_24

Ah, that changes things a lot. I had my mortgage app today and your parents will be considered to have a vested interest in the property as they will be living there and paying the huge sum. It will reduce how much you can borrow quite a bit I believe. Also I don't think it's a smart move. What happens in 10 years when you're in your 30,s and still living with parents? It's not like you can move out as it's your house, you would have to evict them... I don't know much about it but it seems like a lot of problems could easily arise.

bluesnake

Hate to be the neigh-sayer before you, and your parents sake.

Make sure they purchase the house in a way where the future spouse does not get half on divorce, and half of your parents invested money too, and also your parents may become homeless.

Worse even if your spouse lends against the property, and on separation find now have lost all the money, plus are in a bigger debt due to a new loan based of the current value of the property.

I definitely would not try to go in with your sister, as it ties her down. Should she want to get married, or have a gap year, or get her own mortgage, may want to be reimbursed asap and could leave you scrambling for funds. Should she get married and eventually have a divorce, then her husband may be entitles to half the value of her assets too including a portion of the value of the house.

One out of four children are born out of marriage. If you are young, have a mortgage and a baby, the math seems grim.

It was calculated in the UK in 2013 42% or marriages end in divorce. Then there are those couples that lead separate, or hateful lives http://www.ons.gov.uk/ons/rel/vs!!!/divorces-in-england-and-wales/2011/sty-what-percentage-of-marriages-end-in-divorce.html

Think the actual stats are about a third of the married people get divorced, but some in that one third have multiple marriage attempts, to make up the 42% or marriages.

I have met both these type of people. You may think you can claim against them if they are wealthy, but as one found out that her husbands business only paid him a fraction in salary, though he could drive a new truck and support his 3 other kids, and having luxury holidays, while the disable child and mom was left after 17 years with a new mortgage to contend with. Apparently they sometime see him driving around town, and snippets from shared friends.

The words 'young and stupid' and 'love is blind' go hand in hand.

Ulti

Thank you for everyone's input. I understand that buying a home for my parents to live in with me is not the best idea but I am planning to buy a second property for myself down the line. You might be thinking that's bonkers but I don't think it's unreasonable. Whilst I will be trying to pay this mortgage off ASAP, I will be saving still anyway.

My parents will still be working so they will be contributing at least for the next few years. I don't expect them to contribute too much though as they are approaching retirement age. I also don't expect any contribution from my sister but I am talking worst case scenario.

I would actually prefer my mum to be a second applicant on the mortgage and our broker said that would make it easier but my parents are saying that due to low income it would be more difficult that way. No idea what they mean but it's more difficult for me really but nothing I can do there really.

I am rather confident with my career hence this risky approach.

@bluesnake I'm not sure of the relevance of a spouse here? I am currently single. I do plan to be able to buy a second property in the next 5 years if I meet the "love of my life" or the next decade if I am still single but that's not really relevant to this discussion as it is primarily focussed on my first property.

Being homeowners where you most likely all have a property to yourself without having the burden of parents, you might think this is a stupid idea and that it'll be impossible for me to have another property within the next 10 years but what's wrong with having a goal to aim for? I don't think it's unrealistic at all.

I hope that didn't come across as rude and once again, thank you for everyone's input and thoughts.

amnblog

Your parents are putting money in and expecting to live in the property?


Does the Broker know this?


Get a new Broker.

da_rule

So your parents are saying it would be more difficult but your broker says it'd be easier. Do your parents have any financial qualifications that could be the basis for them disagreeing with the professional? Also, if the 'gift' comes with clauses (such as letting them live in the house) then it isn't really a gift. You need to come clean with the broker about this and make sure that you're not committing any sort of fraud by declaring the money as a gift.

They are putting money into the purchase, they will be living there and they will be helping towards the running costs of the house. This sounds like an absolute nightmare from a mortgage and legal point of view.

You really need to take a step back and realise how messy this could get further down the line.

Obviously when you come to buy another place you'll have the higher rate of stamp duty to consider (if it still exists then) and you'll have to pass affordability for two mortgages.