Mortgage options help

Iamdave

Il try to keep this as simple as possible.

Me and my partner are trying to buy a property for £400k. My half is covered with sale of my property leaving me with a mortgage of £80k.

My partner is self employed and a low earner on paper £11k a year. She has trust benefits available to her at roughly the value of what her share in buying the property would be. This trust however is making circa £20k a year in interest. So using this to buy the property wouldn’t make sense due to capital interest.

Her parents own 2 properties worth circa £500k and £300k but are also low earners as self employed and makes sense for tax purposes. They also have a couple of hundred thousand in investments and about £50k in bank. They have offered to lend the cash for the property to my partner (she could be less clever tax wise with her money for a mortgage as her earnings are circa £50k a year) but need to mortgage against something. My partner would effectively pay the mortgage back for them then.

We’re aware that her and her parents all being low earners doesn’t help getting a mortgage. They’re technically asset rich but income poor on paper.

I could probably borrow another £80k on my mortgage but would still leave my partner needing to find the £120k.


Anyone have any experience of borrowing against trusts or investments? Or know what our options may be?

The downside to keeping self employed earnings low for tax purposes I guess as she can easily afford the repayments but now the borrowing is hard.

[Deleted User]

Is she in a Ltd company? As lenders can look at the profit within the company rather than the drawings which may be less to reduce tax

Iamdave

Limited company. Accountant so you can see why deliberately kept low in a way. What would have been profits on the balance sheet have been used to do repairs and improvements on the property so have been written off.

Considering equity release we’re also wondering if you can pay them back? I.e. say you borrowed £100k via equity release this year and then next year won £100k on a scratch card can you get equity release mortgages where you can pay them back (with penalties obviously)

[Deleted User]

Iamdave wrote: »

Limited company. Accountant so you can see why deliberately kept low in a way. What would have been profits on the balance sheet have been used to do repairs and improvements on the property so have been written off.

Considering equity release we’re also wondering if you can pay them back? I.e. say you borrowed £100k via equity release this year and then next year won £100k on a scratch card can you get equity release mortgages where you can pay them back (with penalties obviously)

Have you exhausted all 'normal' options already? Equity release just seems to be over complicating matters for little benefit.

Even if she is posting £11k via salary and dividends, she has another £20k annual income from trusts which she can use to take her to £31k. If she has no outgoings then 4.75x income would take £147,500 borrowing.

The company is also worth revisiting, there are plenty of mortgage companies that bring back tax deductions in to income to lend on the true value of someones earnings, rather than the accountancy tricks.


Also, you cant do 'My Mortgage' and 'Her Mortgage'. It is 1 mortgage with 1 company. Both your incomes/outgoings would go in to the application and lending decisions made on the whole picture.


Equity release is an option for her parents to do maybe. Im not qualified in equity release so will leave it up to someone with CeRER to come along and help with that

Iamdave

We’re only really looking into options now, she has never pulled money from the trust and because of the interest it makes it’s counter productive at present as at current growth it’s value in 10 years would effectively pay enough in interest to be her retirement fund and clear the remainder of her share of the mortgage.

Does she have to have had pulled money from the trust to justify to the lender? Or can she just say I will use the interest from the trust to pay you back and then just use her income from her business to do so.

In terms of a mortgage deal it would be her parents borrowing money either against the £300k property or the trust and then gifting it to my partner.

My half of the mortgage would then be in our joint name with about £80k of official borrowing

getmore4less

What you are trying to do is borrow money to invest(keep the investments you have).

If you can't support that borrowing from current income streams you need to rethink.

You either need to release some of the funds as cash or income.

Gearing existing assets is an option but the problem is they are not yours.

Having multiple sources of loans(parents) won't work for many mortgage lenders.


What sort of trust is it?
Who are the trustees, are there any other beneficiaries?

Iamdave

Looks like her parents can get a buy to let mortgage on the £350k home. From what we can find online.

Would my mortgage company want proof of where my partners £200k came from? I.e. would her parents have yo sign something stating it is a gift to satisfy a mortgage company,

The rental income plus their income covers the repayments. Although it’s my partner actually making the payments. Affordability was never the issue as combined we earn over £100k a year it was my partners on paper low earnings which were preventing us borrowing the money ourselves.

We’ve done our sums and by borrowing the money and not touching the investment we would be well over 6 figures better off over the course of the 20 year mortgage.

[Deleted User]

Yeah I'd say with pretty much certainty they would want to know where £200k came from.

If you are going to submit an honest mortgage application you would declare the repayment your partner will be making as an ongoing commitment.

The parents would also be signing a gift letter to say they have no interest in thr property, it is a gift, and no monthly repayment will be due (last point obviously an issue if submitting an honest mortgage application)

gj373

Not really getting these descriptions of "her share" and "my share" of the mortgage??

getmore4less

If they can raise £350 with your £120k you don't need a mortgage and have some left over to up the investments that are outperforming the mortgage interest.

Without a lender in the picture you don't need to engage in mortgage fraud.
You payback the loan between you and any interest you get charged needs to be declared as income by them they cannot offset their interest costs.

Iamdave

gj373 wrote: »

Not really getting these descriptions of "her share" and "my share" of the mortgage??

£400k house.

She is keen that we go into it as equal partners as on paper we both earn the same too at approx £50k+ per annum. So £200k each. Although being self employed she has deliberately kept her earnings low to do improvements on her business.

My £200k is funded from sale of my house and a remaining mortgage of £80k

Her share would come from a loan/gift from parents. She is effectively paying their buy to let mortgage and will do so over the course of the next 10 years. In a roundabout way this money will find its way back to her in form of inheritance anyway. I know this all sounds very complicated , and my original question was purely aimed at how we can get the borrowing based on our circumstances even though we could just pull out the investment now and be left with just my share of £80k mortgage debt which I plan to clear in the next 3-5 years.