Buying second home with family help- how does it work?

ailskearney

We are contemplating moving home. The house is worth less than ours but is in need of modernising. It would essentially be a forever home. A family member has suggested taking out a second part mortgage, and they would bridge the gap with a resonant loan to secure the sale. This would allow us not to be in a chain. So eg; 40,000 mortgage and £110,000 personal loan. We would then sell our home at our own convince. We owe about £124,000 of a mortgage. I’m trying to figure out at what stage or how, we would pay the personal loan back? Has anyone any experience of this?

AdrianC

So...
Assuming house 1 value £200k, house 2 purchase price £150k.
Currently: Own house 1, £124k outstanding mortgage.

Buy house 2. £40k mortgage, £110k loan from family. Don't forget the +3% SDLT - £500 + £4,500.
It may be easiest to remortgage house 1 to raise the £40k, then not have a mortgage on house 2 at all. While owning both houses, you'll owe around £165k - that's 82% against £200k house 1, so shouldn't be hard.

Refurb house 2. How much will that cost, and where will you source the funds?

When you sell house 1, you reclaim the SDLT, and mortgage house 2 to repay the equity.
Sell house 1. Reclaim +3% SDLT, £4,500. Repay £165k mortgage. £35k equity released. Mortgage house 2 for £35k + £110k - £4,500 = ~£140k, repay personal loan. £140k against £150k is 93% LtV - tight, but might be possible. How much value will have been added by the refurb?

ailskearney

I would imagine £50,000 would make a good job of the house. It is in one of the better areas of town so should help the house value. But it’s the type of house you would make into a ‘forever home’, garden for children etc I need to use the equity from house 1 to modernise. 

Thrugelmir

ailskearney said:

 I need to use the equity from house 1 to modernise. 

What % LTV would that lift you too?