Lifetime Mortgage in order to provide "bank of mum and dad" help with first house purchase

getmore4less

Our son and Dil will be able to put up their own £20k deposit in addition to the £50k we could provide, and they will be able to make monthly repayments of about £1000. On this basis, and assuming a 25 year mortgage term, I reckon (ignoring fees and insurance etc) they would be able to afford a house of around £190k with no help from us; about £220k if they decided to pay the interest on the £50k as they went, and about £240k if they let the interest roll up on the £50k, and put all their £1000 pm into their mortgage (I'm assuming 5% for their mortgage, and 3% for our LM). If they opted for a 30 year mortgage of theirs, then I reckon the latter two figures would become around £233k and £256k. Still not great figures for Sussex, but they could initially start out with a 1 or 2 bedroom house. 

this bit jumped out at me because those numbers don't look right and rates for the mortgage too high borrowing too low.

with £20k deposit and 90% LTV   3.5% over 25 years £180k  £850pm  and a £200k house.

with 95% LTV and £1kpp over 25y say 4% they could go to £190k  go out to 30years £210k  £230k house with no help.

Going the other way with say £20k help 85% LTV £227k mortgage  £267k house rate ~2.5%  25y £1018pm  30y £900pm

I would be waiting to see what rates come out the for the new  95% LTV guarantee  it could be that the equity release ends up costing very much the same as them just borrowing the money and getting there LTV down as quick as possible.

if the 95% are 3%, £1kpm over 30y pays for £237k  making £257k house with their £20k(+ whatever they can save in the mean time)  and no help needed.

In 5years they will be close to 82% LTV on purchase maybe under 80% with price rise and better rates.

I think you may be able to help borrowing a lot less than £50k

A quick look at the Scottish widows option and that says ERC free after 10 years so that might ne another way to protect longer term if the family can borrow cheaper than the ongoing ~3% they buy out the life time.

reheat

getmore4less said:

this bit jumped out at me because those numbers don't look right and rates for the mortgage too high borrowing too low.

The reason is because we would not be able to do this for a year, maybe two, so I assumed a mortgage rate of 5% for our son and Dil. Seemed unwise to base on todays prices. But yes, if the rates then are not so different from today's prices that would be good, though always have to try and build in a bit of an affordability safety margin for variable rates increasing.

Mind you, I have now realised that our own LM rate is on the cusp of our circumstances, so a slightly better LTV might make a significant difference, when the time comes.

Thanks for all that help, very much appreciated.

MWT

reheat said:

(I'm assuming 5% for their mortgage, and 3% for our LM).

If you think that both of these mortgages are likely to be taken out in the same time-frame then I would not assume that your Lifetime Mortgage is going to be any cheaper than their mortgage, and it may in fact be higher.

Both rates will be affected by their LTV of course, but in general a Lifetime Mortgage is going to be a little moire expensive than a normal residential mortgage.

reheat

MWT said:

reheat said:

(I'm assuming 5% for their mortgage, and 3% for our LM).

If you think that both of these mortgages are likely to be taken out in the same time-frame then I would not assume that your Lifetime Mortgage is going to be any cheaper than their mortgage, and it may in fact be higher.

Both rates will be affected by their LTV of course, but in general a Lifetime Mortgage is going to be a little moire expensive than a normal residential mortgage.

Are you sure? I've just been discussing with one of the LM advisers and they got me some Aviva figures. 4.22% for 50k against 300k house with 50% IP. Or 3.05% for 40k against same 300k house with 50% IP. For comparison, 2.51% for 50k against 300k house with no IP, but still with -ve equity guarantee. These rates seem to be very comparable with normal repayment mortgage rates.

reheat

The other thing I forgot to mention is that our son and Dil have previously been quoted maximum loan amounts, for their particular circumstances, of around 160k/170k, so would be limited by that. But he did also mention "15 years" somewhere in one of our conversations, so maybe he was thinking of a 15 year mortgage, which would be unrealistic in practice.

getmore4less

10year fix 50% LTV residential are around 2%  quite a bit less than those rates.

Is age a problem limiting their term.
Or income limiting amount.

A residential repayment will improve LTV relatively quickly I've a live mortgage eating into LTV.

reheat

getmore4less said:

10year fix 50% LTV residential are around 2%  quite a bit less than those rates.

Is age a problem limiting their term.
Or income limiting amount.

A residential repayment will improve LTV relatively quickly I've a live mortgage eating into LTV.

They could never hope to get anywhere near 50% LTV. By unrealistic, I meant would need to consider 25 yr or 30 yr.
Age 34.

getmore4less

reheat said:

getmore4less said:

10year fix 50% LTV residential are around 2%  quite a bit less than those rates.

Is age a problem limiting their term.
Or income limiting amount.

A residential repayment will improve LTV relatively quickly I've a live mortgage eating into LTV.

They could never hope to get anywhere near 50% LTV. By unrealistic, I meant would need to consider 25 yr or 30 yr.
Age 34.

But your lending starts at well below 50% and maxes out at 50% at much higher rates.

At 34, starting at 30years term is not unreasonable to keep payments down.

They can soon bring that down with overpayments.

A lifetime fixed at a rate similar to current high LTV rates could work.

If rates go up the fixed lifetime becomes competitive.

If they don't a refinance to pay back lifetime once LTV improves and residential rates are cheaper.

reheat

The rate a lender is prepared to offer on a normal repayment mortgage. Is it affected by whether some of the deposit comes from parents of the buyer? So if we contributed £20k, to supplement our son and Dil own £20k on a £200k house, would they still get an interest rate based on a 90% LTV or a 80% LTV?

reheat

getmore4less said:

Going the other way with say £20k help 85% LTV £227k mortgage  £267k house rate ~2.5%  25y £1018pm  30y £900pm

...
I think you may be able to help borrowing a lot less than £50k

Interesting possibilities you raise here. So long as lenders allow parental contribution to deposit to favourably influence interest rate, some surprisingly good numbers pop out even with say at £15k contribution, plus if we paid the up front fees.