Buying out a relative as a first time buyer

Badger1921

Hey everyone,
I had a question around mortgages. My dad sadly passed away about 18 months ago. He left the house to me and my sister (who I get on with fine!) - so we each own the house 50% each.

I'd like to buy my sister out of the house (my sister lives quite far away and has children, so she's not really interested in owning the house.)

I need to get a mortgage to buy my sister out. I was wondering though - will I need a cash deposit for the mortgage as I'm a first time buyer? Can I use the equity for the half of the house that I already own for the deposit? 

I don't really have any cash savings, so I need to be creative if any deposit is required.

Thanks so much for reading.

gwynlas

No you will not need a cash deposit as you have been left half the house.

You will still need to meet affordability criteria for mortgage and have the money for remainder of costs.

If you are able borrow sufficient to bring the house up to modern standards as now is the best time to do so, unless you are able to live in the house as is and do work gradually out of income.

You could take in a lodger/sharer which will give you additional income potentially tax free.

kimwp

Deposits are required because if you stop paying your mortgage and the bank sells your house to recover their money, they will sell below market value to sell the house quickly. Therefore, between the deposit and the money they get from the sale, they will get their money, even with selling at a low value and the costs of selling. It's why interest rates are better with a larger deposit - the banks are taking less risk of losing money (or making less profit than planned).

In your case, there is no need for a deposit because you are borrowing half of the value of the house on the basis that the bank can sell the whole house to get their money back if you don't keep up with mortgage payments. 

Badger1921

That's really helpful. Thanks so much @gwynlas - It was quite confusing as I kept reading that I would still need at least a 5% cash deposit but I didn't know if that applied as I still own half of the house. 

Badger1921

kimwp said:

Deposits are required because if you stop paying your mortgage and the bank sells your house to recover their money, they will sell below market value to sell the house quickly. Therefore, between the deposit and the money they get from the sale, they will get their money, even with selling at a low value and the costs of selling. It's why interest rates are better with a larger deposit - the banks are taking less risk of losing money (or making less profit than planned).

In your case, there is no need for a deposit because you are borrowing half of the value of the house on the basis that the bank can sell the whole house to get their money back if you don't keep up with mortgage payments. 

Thanks! The way that you explained that actually makes sense!

RAS

You still need conveyancing costs, SDLT unless your share is exempt, and building insurance from exchange.

Do check the local CT regulations before deciding whether to move in immediately. Several people have been hit by empty homes penalties when they delayed moving in to refurbish, because the sale took longer than the time allowance.