getting a mortgage with a relative

Sunny2good

A relative has asked whether it would be possible for my brother to help them get on the property ladder by becoming a joint owner. My brother does not have to put any cash in. Deposit and all costs will be paid by the relative and he just needs my brother's name on mortgage to increase the amount of lending he can get. He is willing to organise this as "tenants in common" and give him a percentage share.

Also to note is the fact that my brother has a six figure salary and also has a residential mortgage already, so affording a second mortgage should not be a problem.

He wants to have my brother as a joint owner for upto 2 years max after which he will take him off the mortgage and replace with his wife (when she starts working). Just wanted some answers to points below.

1) Given that my brother has already got a residential mortgage, will lenders be ok to have him as a joint owner?
2) What is the process of removing him as the joint owner and adding his wife in the future. Is there a cost involved ?
3) Is it a different process if you remortgage (say after 2 years) with same lender vs changing lenders ?
4) Any issues/complications you can see for my brother due to this setup? He does not mind helping unless there is setback for him in future. relative has a very stable job long term job so no problems with him being unable to keep up repayments.

Many Thanks for your help.

AnotherJoe

There will be a restricted pool of lenders.
Lenders will require brother to be able to afford this whole mortgage and his existing.
There will an extra 3% SDLT for your brother to pay.
Your brother would be assuming all the liabilities of the mortgage.
I can see many issues with this. Get-out clauses on every eventuality would be vital.(suppose for example relative and wife split up. Or brothers wife and him split and she wants some of teh equity of relatives house) Essentially a stack of edge cases you may think are unlikelyb that crop up here every day.

If your brother is happy to help and has the spare cash, a better solution would be a loan that is not repayable until a specific time, say remortgage or sale of house. This would be put as a second charge against the house. Some mortgage lenders will allow this (not all).
Your brother can write into this loan agreement conditions such as % uplift on rise of equity in home or whatever else is agreeable, upon release.

Sunny2good

Many thanks for your reply. The edge cases are certainly something he has already considered. And you are right, they may appear unlikely but have to be taken into account.

AnotherJoe wrote: »

There will an extra 3% SDLT for your brother to pay.

This is new to me, could you explain or provide links to what this law is and how it works? The property value is £400K. Stamp duty bill of £10K will be paid by relative. Are you saying there will be an additional amount payable separately by my brother?

Caz3121

it would be classed as a second property for one of the 'owners' so the stamp duty would be £22,000 not £10,000

Sunny2good

Caz3121 wrote: »

it would be classed as a second property for one of the 'owners' so the stamp duty would be £22,000 not £10,000

ah, i get it. Thanks, I did not think about that.

foxy-stoat

It would be far better and cheaper to wait until the Wife is earning and they can jointly apply for the mortgage together. It would eliminate paying the stamp duty when the Wife comes into the picture and any Capital Gains Tax that the 6 figure earning brother may have to pay, also legal fees and the fact that the lender may not let the brother come off and the wife go on.

Thrugelmir

Sunny2good wrote: »

relative has a very stable job long term job so no problems with him being unable to keep up repayments.

Affordability criteria is set for good reason by the regulators. Your brother needs to consider the downsides of entering such an arrangement. The advice to the relative should be buy what you can afford to. Who knows what the future might hold. That's why lenders themselves only work on known facts. Assumption is far to often where people personally get it wrong.

Sunny2good

foxy-stoat wrote: »

It would eliminate paying the stamp duty when the Wife comes into the picture and any Capital Gains Tax that the 6 figure earning brother may have to pay, also legal fees and the fact that the lender may not let the brother come off and the wife go on.

Thanks. This part isn't clear to me. When the wife wants to take over the mortgage and replace my brother, what is the process of doing that? Your comment says she will have to pay SDLT, is that true ? I understand the part about CGT being paid.

foxy-stoat

Sunny2good wrote: »

Thanks. This part isn't clear to me. When the wife wants to take over the mortgage and replace my brother, what is the process of doing that? Your comment says she will have to pay SDLT, is that true ? I understand the part about CGT being paid.

Lender has to agree that the Wife and Husband can afford the mortgage on their own.
Other Brother needs to sign a Transfer of Equity form.
Wife and Husband get a new mortgage.


https://www.gov.uk/stamp-duty-land-tax/overview

erin110

I would always recommend staying away from a relative mortgage for the obvious reasons. However, if its important you can take out a joint borrower sole proprietor mortgage. This means the relative will be on the deeds only but both your brother and relative will be on the mortgage for affordability. Its like a guarantor mortgage but there would not be the 3% stamp duty implication. It may be an option dependant on how your brother and the relative are actually related to each other.


Speak to an experienced broker.

Sunny2good

erin110 wrote: »

I would always recommend staying away from a relative mortgage for the obvious reasons. However, if its important you can take out a joint borrower sole proprietor mortgage. This means the relative will be on the deeds only but both your brother and relative will be on the mortgage for affordability. Its like a guarantor mortgage but there would not be the 3% stamp duty implication. It may be an option dependant on how your brother and the relative are actually related to each other.


Speak to an experienced broker.

Great. Thanks for this tip. I have looked more into it and it might just be the product he can take on. Some questions though if you do not mind. Is my understanding correct that with this type of product:

1) My brother will be listed jointly on mortgage but won't be on the deeds?
2) So no joint tenants or tenants in common issues. Relative will own 100% of the property along with the bank?
3) Are there any CGT issues for my brother?
4) When relative's wife starts working, they can apply jointly for a mortgage together and then a solicitor will simply add her onto the deeds