Remortgaging in later life

AHT14

Hi,

Not sure if anyone has been in a similar situation so thought it may be worth a post.

Background...I’m 33 and have a 4 yr old son, separated from my (soon to be ex) husband 3 years ago and have just sold our joint property. Ex has washed his hands of all responsibility, seeing our son and hasn’t contributed to property in 3 years but has (kindly 😏) agreed to me keeping the equity when sale goes through. We didn’t put a deposit down so this is in total about £15k once selling fees etc are paid.

Going forward...

I am unable to get a new mortgage due to arrears on current mortgage (was on mat leave when ex left so last few years have been a struggle working part time etc). I am financially stable now but obviously my credit has been affected. My Dad has very kindly offered to help us out and after looking at various options decided that remortgaging his house to release equity and buy one for me with cash (then I would pay his mortgage so to speak) would be the best option due to lower interest rates than having a second mortgage. He has been to see his current lender today (has a small mortgage left on his property) and they will only lend for the period he is employed so will not take into account his pension. He is 54 and hoping to retire in about 4 years. Has been in his current job since he was 16, good credit, good pension etc. They tried different terms but couldn’t reduce the monthly repayments enough to make it affordable.

His property is worth approx £200,000 and he has about 4 years left on the mortgage I think. The one we would like to purchase is £155,000 (have £15k deposit and a bit more if needed).

So my question is, are there any providers who would consider his pension? The advisor suggested he look at buy to let mortgages but we don’t know much about them other than that interest rates tend to be higher and larger deposits required? Would it be best to get an independent broker or is anyone aware of any high street banks that offer to older borrowers? The property we would like to make an offer on is for sale with an agent, are estate agents mortgage advisors worth a try? I wasn’t sure if they have access to the whole mortgage market or are tied to certain ones etc?

Any advice would be very welcome. Thanks for reading

tlc678910

Hi,
I think you need to see a whole of market broker to see what is possible as you need to overcome the challenge of your dad's age but also the challenge of releasing money to purchase property which can be a no.

Buy to let normally can't be taken for family to live in.

Does your dad live near you and is there scope to extend or build an annexe on his property giving you all adequate space and privacy. He might be able to release money for this purpose with a remortgage. I would suggest he give his "ordinary" retirement age (when he can draw state pension) when asked about retirement as he is "hoping" to retire in 4 years but I'm sure this would only be If he can afford to and If the mortgage runs beyond retirement he would then have both state and private pension for affordability.

If there is not room to extend would he consider selling his own home and buying somewhere with an annexe or that suited semi separate living. I'm not suggesting your father sell his lifes investment to live in an annexe - i think it should be him in the master bedroom of course!

If you lived with your dad you could get your finances straight over the coming years and still take a 25 year mortgage at 40 to end when you are 65. (Edit: you already have a great start on a deposit with your 15k) Perhaps borrowing a deposit if your dad can afford it. You and he must consider you are asking him to take a huge gamble with his own finances and security by effectively starting his own mortgage over again at this point. Is it fair? I know you intend to pay it but what if you become ill and unable to work - he will feel he has to battle on and his dream of retiring in 4 years will be history.

It's a very different situation from If your dad could afford to buy the house from cash he has lying around without affecting his own mortgage and security.

There is lots to consider if your father does buy a separate property whether it should be in your or his name.

In his name capital gains tax may be due if it is sold in the future at a profit and an extra 3% stamp duty will apply as it's a second property. If your dad required care in the future the house would be his asset that might need to be sold to pay for it. But if he is in financial distress he has the right to sell and get his money back or to live in the property. He can leave it as part of his estate to multiple people if you have siblings for example.

With the property in your name your father carries the mortgage but has no stake in the new house. He could be left struggling beyond retirement to pay for this with no way out and If his own home was repossessed be left with nothing. In financial distress he has no rights over your house.

If you were to remarry and divorce half your dad's hard earned money could walk off into the sunset. If you were to remarry and die all his money could.

If I were your dad I think I would want the new property in my name.

Loads to consider!

Edit: on a buy to let basis your rent will be taxable income for your father so if he has used his tax free allowance you would need to pay more than the mortgage to cover his costs. If the rental income (receipts not profit) pushes him into a higher rate tax payer bracket he will pay tax on the mortgage interest part of the mortgage as well as the repayment part. This will be at his usual rate with a 20% credit back against it. If you are a higher rate tax payer (including rental receipts in income) then mortgage interest is not fully deductible as an expense.

tlc678910

Hi OP,
Was looking back at my post and it occurred to me that if your dad was able to borrow the money a good form of ownership for both of you might be a private mortgage. You would borrow the money from dad and put the property in your own name but your dad would have a charge against the property just like a mortgage lender. This would protect his money.

You make payments to dad like paying a mortgage. If there is no interest i don't believe there are any issues with HMRC.

A solicitor might be able to advise you on this.

Tlc

AHT14

Thank you very much for your reply there are some really good suggestions and bits of info I’d not considered.

Originally the plan was I move back and save up as much as possible so I may still have to do that if we can’t sort something. My Dad has just been incredibly kind in trying to help in anyway (or really doesn’t want me, my boy and my dog hanging around too long haha!) but as you say there is a lot to consider.

I think the fact he has his pension so soon (but worth extending for mortgage purposes yes I agree) is a bit of security and the fact we could sell the property (the one id have) if any problems arose. Id not even considered the marriage part though (not that it’s remotely close!) but it’s a very good point. My parents want to move when he retires anyway so we were talking last night about what would happen then. So much to think about.

Nationwide are happy to take into account a pension pot which is good to know for any older borrowers it’s just how the remortgage side will go. We’ll see if they have any other options to compare like the latter you mentioned and I have the number of a broker now.

Thanks again for your response

Thrugelmir

tlc678910 wrote: »

You make payments to dad like paying a mortgage. If there is no interest i don't believe there are any issues with HMRC.

Sounds like rent to me. Which is taxable.

tlc678910

Thrugelmir wrote: »

Sounds like rent to me. Which is taxable.

The reason it's not rent is because OP owns the house in this situation and you can't rent your own property. It is the repayment of a loan made by father to daughter. A loan that was used to purchase a property.

AnotherJoe

Maybe your dads been too honest for his own good.

Will he be forcibly retired in 4 years time? If not, do they need to know what his plans are?After all he may intend to work until 75 and get made redundant in 4 years time and then pensioned off, there's no practical difference.
So can he look at a mortgage as if he isn't going to retire? Not using the same lender obviously.

enthusiasticsaver

He doesn't need to tell them he intends to retire in 4 years but most lenders won't lend past 70 so I guess the mortgage has been worked over 16 years. It doesn't matter whether he has a pension or not as the issue is whether he stays alive long enough to repay the mortgage. Have you seen a mortgage broke4 who specialises in bad credit mortgages? A possibility is your dad realises enough equity or savings to give you a bigger deposit so that you can get a mortgage in your name over a longer term which will make the mortgage more affordable. Alternatively either rent or stay with your dad and save hard.