Buying a unique property with a private mortgage

[Deleted User]

moolriaz said:

davidmcn said:

moolriaz said:

davidmcn said:

Why are you so keen to buy a "cool" property if it's generally viewed as being at risk of becoming too "hot"?

Your suggested plan really isn't going to work, you can't buy a property and leave the seller's mortgage in place. You'd need to find the money somewhere else (or get them to slash the price).

What do you mean by "hot"? The property is clearly sellable/buyable

The burny cladding issue which is making the property unmortgageable - and therefore not "clearly sellable/buyable" other than to cash buyers. And you're not a cash buyer, because you don't have enough cash.

Ah - I haven't had a mortgage provider raise this. I heard through the grapevine that it had been a problem for other tenants. AS such the building management was set to remove all the material last month. It's basically some wooden tiles on every 2nd floor - a job that can be done in 2 days. This was delayed because of the virus. As such it is a temporary issue that obviously affects many residents so it would be sorted within the next 3-6 months.   

I am getting a mortgage from the landlord directly, I am not trying to get a high street lender. This is known as a 'private mortgage' and used to be common back in the day, and is still common in countries like France. 

Yes the regular posters on this board are quite aware of private mortgages.  No this is not something you can do whilst the vendor still has a mortgage secured against the property himself.

snickpan

If seller stops paying mortgage, what would the lenders do with regards to the property that the mortgage is associated with

eddddy

The landlord's mortgage lender won't allow you to own any percentage of the property.

If nothing else, because if the landlord doesn't pay the mortgage, the mortgage lender will want to repossess the whole property in order to sell it, not just the percentage the landlord owns.

Even without the complexity of the landlord's mortgage, your suggestion would be hugely complex - for example:

• What happens if you can't keep up repayments on the private mortgage?
• What happens if you go bankrupt?
• What happens if the landlord goes bankrupt?
• Who's responsible for paying the service charges? What if whoever is responsible doesn't pay them?

[Deleted User]

AdrianC said:

moolriaz said:

Hi,
TLDR:

• Want to buy a property for 500k, where landlord has a 164k mortgage on it still
• Want to buy directly from the landlord and have a private mortgage where I repay him at a low interest rate but in 'chunks' where possible
• Unclear if we can do this without agreement from his mortgage provider
• Would prefer to take 100% ownership of the property, but then assume the risk of his mortgage would be passed on to me
• Worried about speaking to his mortgage provider as they may not allow it

He can, of course, lend you however much money he feels he wants to lend you at whatever interest rate he wants to charge you over whatever period he wants. But why on earth he'd do that, at a rate less than you'd get from a normal mortgage lender, I have no idea.

Why can't/won't you just borrow the money normally?

• We have a good relationship and he is happy to offer it to me in this arrangement after many conversations and lots of trust building. People offer enter into transactions with people that they like, that's how he ended up buying this property too (the seller liked him, and gave him a lot more time to get things together).  
• I have paid him significant rent to date and have good cash flows under normal circumstances.
• While a mortgage provider may ask for a high interest rate, and individual can only really save in 'normal' savings accounts, where you'd be lucky to get even 1% on relatively high deposits. So lending on your property at a rate that is less than what a mortgage provider would offer but higher than what you can get in savings can make sense.
• I don't want to borrow the money 'normally' because I my last 2 years tax returns don't look good, as I run a company and have kept most of my cash in the business where there is much larger return on cash. I have the ability to cash out but prefer not to, as the company is an even better investment and supports >50 employees. Especially during the pandemic. 

davidmcn

snickpan said:

If seller stops paying mortgage, what would the lenders do with regards to the property that the mortgage is associated with

Repossess it. That is kinda the point of mortgages.

[Deleted User]

snickpan said:

I wouldn't rush in, no-one knows what property prices are about to do.  
At some point you'll need a solicitor (for a declaration of trust maybe) if you'll be owning the property but someone else, ie the sellers bank, owns a chunk of the property.  May as well get chatting to that solicitor now, rather than your peer group here.

Thanks. I'm actually using my company lawyers for advice as I trust them more. It does seem that you don't NEED a lawyer for anything in a sale (as with most agreements in life and business), a transfer of deeds can be done between two individuals, and as long as you are not breaking his agreement with his mortgage provider, is it fine. As pointed out, his provider doesn't actually own any part of the property, it is security against their loan to him. 

In terms of property prices, I feel this is a good time to buy as he has now been amenable to going down below what he even paid for the property,  and I feel it is now at nearly 15% below 'normal market value' conditions, and if we can get a flexible arrangement here whereby I am getting a private mortgage, I'd say that's a good setup. He is also worried about not being able to sell for 3-6 months (people aren't even allowed to view properties now), so it also wraps up things so he can get a move on. I'd expect everything to close only by July.

AdrianC

snickpan said:

oh right, thank you.  But something about the sellers name on the deeds, if he still has the mortgage?  It will need some legal interaction anyway, so buyer may as well start off on the legal path now

The person whose name is down as owner at the Land Registry is the owner.

No sane solicitor would go near any "purchase" that didn't involve the registration changing names, or the vendor's lender releasing their charge.

steampowered

The mortgage provider won't consent to ownership of the property being transferred with the mortgage outstanding. 

One of you would either have to pay-off the £164k. Or you'd need to take out a new mortgage in your own name when ownership of the property gets transferred - ownership of the property and the people who have the mortgage to be the same. 

I don't understand why the seller would agree to this arrangement. Transferring ownership of the property to you without receiving payment would be an enormous risk for the seller. If you can't afford to buy the property shouldn't you rent it - saving up a deposit for a future mortgage in the meantime?

steampowered

[Deleted User] said:

He gives me 100% of the property via deeds, we have a legal contract which states I owe him the property price + interest, and we cover all the fine print. I do a lot of legal work in my job and have drawn up many custom agreements so am comfortable with this.

This has disaster written all over it. Conveyancing is not simply a matter of drawing up a contract! There are all sorts of additional rules to follow when dealing with contracts concerning the sale of land; as well as the land registration requirements; which don't apply when you are dealing with regular contracts. Involve a solicitor - a proper solicitor, not a licensed conveyancer / conveyancing factory.

If the seller did proceed with this I would have thought he would want security over the property to allow him to get the property back in the event of non-payment, which would usually be done by entering into a registered charge and getting that registered at the land registry.

[Deleted User]

Even without the complexity of the landlord's mortgage, your suggestion would be hugely complex - for example:

• What happens if you can't keep up repayments on the private mortgage?
• What happens if you go bankrupt?
• What happens if the landlord goes bankrupt?
• Who's responsible for paying the service charges? What if whoever is responsible doesn't pay them?

Why is that complex? You can have a legal agreement that covers that easily:

• What happens if you can't keep up repayments on the private mortgage? -> The landlord gets to repossess the property, as a mortgage provider would, based on a default on the mortgage trigger 
• What happens if you go bankrupt? -> Similar to be above, the portion of ownership (if any) would be subject to the applicable liquidation process 
• What happens if the landlord goes bankrupt?  Similar to be above, the portion of ownership (if any) would be subject to the applicable liquidation process 
• Who's responsible for paying the service charges? What if whoever is responsible doesn't pay them?   -> I would be responsible for the service charge, as I would be for utilities and council tax