Is a second mortgage realistic? (Scotland)

akira181

My mother is 67, retired, living alone in a small island village and wants to move closer to me.  I expect she's feeling quite isolated since most of her friends have been moving off the island in the past few years and I haven't been able to go visit due to the COVID lark.  All this mortgage stuff is like another language to me and I'm assuming, due to her age and being retired, that if she wanted to get a mortgage, it would have to be in my name.  Please correct me if I'm wrong on this.

I think I can scrape together a 20% to 25% deposit depending on the value of the property my mother finds.   She owns her current house outright, which she intends to sell.  She wants to buy a new place, move her stuff in, redecorate her existing home before selling and use that to pay off as much of the new mortgage as possible.  However, I'm not sure how realistic that is.

My girlfriend and I purchased our first home a couple years ago and we renewed our joint mortgage end of last year.  So I'm not sure if it's possible for me to get a second mortgage or if my mother selling her current place will factor into the application process.  Can someone offer guidance in how to get the ball rolling?

K_S

@akira181 Sorry, it isn't clear - are you asking about your chances of getting a second home mortgage with a 20-25% deposit, for your mum to live in?

If yes, then that may be possible if your income is sufficient to meet affordability requirements taking into account the mortgage payments and running costs of both properties.

akira181

@K_S Sorry, my head is a little scrambled trying to understand all this, I've reworded the OP but it's still a bit muddy I think.  Basically yes, I would like to get a second home mortgage for my mum to live in.  I can probably get a 20 to 25% deposit together depending on the value of the property she finds.

However, my income is a little under £30k a year and I have £140k outstanding on my existing joint mortgage, so I'm concerned that I don't meet the affordability requirements.  However, my mother intends to sell her current property (eventually) and put that towards the new place, which should pay off at least 90% of the new place.

That would make it much more affordable and I was looking at getting an AIP to find out what sort of price range she should be looking at but I don't know how to get an AIP that factors in her current property if that makes sense?

K_S

akira181 said:

@K_S Sorry, my head is a little scrambled trying to understand all this, I've reworded the OP but it's still a bit muddy I think.  Basically yes, I would like to get a second home mortgage for my mum to live in.  I can probably get a 20 to 25% deposit together depending on the value of the property she finds.

However, my income is a little under £30k a year and I have £140k outstanding on my existing joint mortgage, so I'm concerned that I don't meet the affordability requirements.  However, my mother intends to sell her current property (eventually) and put that towards the new place, which should pay off at least 90% of the new place.

That would make it much more affordable and I was looking at getting an AIP to find out what sort of price range she should be looking at but I don't know how to get an AIP that factors in her current property if that makes sense?

@akira181 Setting aside the matter of the cash that your mum can put into the mortgage later on, the current mortgage and upkeep commitments will reduce your affordability significantly. Based on the very limited info in your post, very very roughly speaking you may be able to borrow in the region of 75k or so on a second home mortgage with a 20-25% deposit. Is that sufficient for the house price you are looking at?

If the plan is to sell the house later on after you've got a mortgage and she's moved closer to you, there's no way of incorporating that into an AIP at this point.

Emmia

Why can't your mum sell her existing property, and buy a new one with the proceeds + a small mortgage if necessary?

Property doesn't need to be redecorated to sell. 

I don't understand why you're looking to take out a second mortgage.

AdrianC

akira181 said:

However, my mother intends to sell her current property (eventually) and put that towards the new place, which should pay off at least 90% of the new place.

So there we go. Problem solved.

She should be able to borrow such a small amount. What's her pension situation?

dimbo61

Mum should sell her current home and look at over 55,s developments.
Paying rent each month and having a good lump sum in the bank means Mum can enjoy life and have a few holidays, buy a new car etc

If she does not want this then consider a 6/12 months short term rental while she house hunts

[Deleted User]

@akira181 do you further savings over and above the deposit to pay the Additional Dwelling Supplement and LBTT? 

I agree that your mum doesn’t need to decorate her home in order to sell. Have a bit of a declutter by all means but she’s unlikely to see the money spent decorating back.  

Has your mum considered renting instead of buying? Alternatively if with the money she receives from selling her house and a loan from you she can afford to buy somewhere outright that would seem a better and more tax efficient option for the pair of you. 

akira181

Emmia said:

Why can't your mum sell her existing property, and buy a new one with the proceeds + a small mortgage if necessary?
I don't understand why you're looking to take out a second mortgage.

I'm assuming that my mum being 67 and retired would be a defacto rejection on a mortgage application so it would need to be in my name.  If that's not the case, I would put it in her name.

AdrianC said:

akira181 said:

However, my mother intends to sell her current property (eventually) and put that towards the new place, which should pay off at least 90% of the new place.

So there we go. Problem solved.

She should be able to borrow such a small amount. What's her pension situation?

I think she gets £600 a month on her pension, she was a couple years off qualifying for the full amount but her old employer went under so she decided to retire.

Lover_of_Lycra said:

@akira181 do you further savings over and above the deposit to pay the Additional Dwelling Supplement and LBTT? 

I agree that your mum doesn’t need to decorate her home in order to sell. Have a bit of a declutter by all means but she’s unlikely to see the money spent decorating back.  

Has your mum considered renting instead of buying? Alternatively if with the money she receives from selling her house and a loan from you she can afford to buy somewhere outright that would seem a better and more tax efficient option for the pair of you. 

I'm completely clueless about house buying, nevermind the additional complexities of a second home.  It's my first time hearing about ADS and LBTT, got some more reading to do!  She definitely needs to declutter, the only problem with renting while she house hunts is that we would have to move her stuff into storage until she finds a new place, a step I was hoping to avoid TBH as there would no doubt be breakages along the way.

K_S said:

*snip

@akira181 Setting aside the matter of the cash that your mum can put into the mortgage later on, the current mortgage and upkeep commitments will reduce your affordability significantly. Based on the very limited info in your post, very very roughly speaking you may be able to borrow in the region of 75k or so on a second home mortgage with a 20-25% deposit. Is that sufficient for the house price you are looking at?

If the plan is to sell the house later on after you've got a mortgage and she's moved closer to you, there's no way of incorporating that into an AIP at this point.

Borrowing 75k with a 40k deposit would come up short as house prices around here start in the region of £170K.  I'd expect my mums house to be valued in the region of £150k (nothing official yet, just comparing it to other houses in the area, which are a little smaller) but it's hard to know what the market is like as it's a small island village. 

Is it not possible to use my mum's house as collateral for a larger second mortgage, with the provision that the proceeds from the sale of it would be used to pay back the second mortgage?

AdrianC

akira181 said:
Borrowing 75k with a 40k deposit would come up short as house prices around here start in the region of £170K.  I'd expect my mums house to be valued in the region of £150k (nothing official yet, just comparing it to other houses in the area, which are a little smaller) but it's hard to know what the market is like as it's a small island village.

So she only needs to raise £20k?
Can you increase your mortgage, lend it to her, in return for a charge on the property? That would probably be the easiest way to help out.

Is it not possible to use my mum's house as collateral for a larger second mortgage, with the provision that the proceeds from the sale of it would be used to pay back the second mortgage?

Ish.
She would mortgage the first house, and use the money raised to pay for the second one.
But that won't help, will it? Even beside the minor detail you don't think she'll get a mortgage...
She has £150k asset now. You've not mentioned any cash assets.
She wants to buy a £170k property.
She cannot raise £170k from a £150k house.

There is no easy way she can afford to own both properties at once, if that's what you're thinking. She cannot afford to own £320k of property. End of.

glennevis

Don't forget in Scotland the minimum rental period is only 29 days not 6 months. Google 'Private Residential Tenancy'.