Having a mortgage on a property that is not yours

Nathaniel_Essex · 20 April 2017 at 12:22AM

Curious if this can be done and if so, if it's quite a common occurrence. Dad has poor credit but owns his home which is worth about £300k but has about £50k left on his mortgage. He wants to remortgage the place and pay off the a few debts but because of his age and income, no bank will touch him.

As he has poor credit, I wanted to know whether it would be possible to get a mortgage solely in my name but using his house as the collateral?

Lilla_D · 20 April 2017 at 8:40AM

Hi, if your father is old, has low income and poor credit history, then indeed it may be a good idea to get the mortgage in your name instead of his.

However, if it's only you on the mortgage (and therefore on the deeds), it's not a remortgage any more, but an inter-family purchase, as effectively the house is passed onto you. (A collateral is an asset used as a back-up security for the purchase of an other asset - this is not the case here.)

When you do an inter-family purchase, you can do so at a lower price than the market value in order to limit the stamp duty liability. The mortgage will have to be affordable based on your income, outgoings, etc., but it is a possible solution. It's best to speak to a broker to find the right option and have a smooth transaction.

Keep_pedalling · 20 April 2017 at 8:50AM

Lilla_D wrote: »

Hi, if your father is old, has low income and poor credit history, then indeed it may be a good idea to get the mortgage in your name instead of his.

However, if it's only you on the mortgage (and therefore on the deeds), it's not a remortgage any more, but an inter-family purchase, as effectively the house is passed onto you. (A collateral is an asset used as a back-up security for the purchase of an other asset - this is not the case here.)

When you do an inter-family purchase, you can do so at a lower price than the market value in order to limit the stamp duty liability. The mortgage will have to be affordable based on your income, outgoings, etc., but it is a possible solution. It's best to speak to a broker to find the right option and have a smooth transaction.

But that would leave the father with no assets, a pretty poor place to be in old age.

If he is on his own downsizing would be the sensible thing to do.

Lilla_D · 20 April 2017 at 9:02AM

Correct, the asset would be passed to OP, but the father would get to stay in his home without the upheaval of a move, which might be his preferred option.

Let's also remember that OP mentioned additional debts to clear, so after the sale and debt payment, the father might not be left with enough money to buy something he likes in an area he likes. It's easy to say that downsizing is a sensible thing to do, but many people prefer to stay where they have been for a long time. It's for the family to decide what is right for them.

Also, if the asset is passed on this way, by effectively gifting his equity to the child, and the father survives it by at least 7 years, then the asset will be outside the estate of the father when he dies, so the inheritance tax liability will be reduced. For this, of course, professional tax advice should be sought, but this is my understanding.

getmore4less · 20 April 2017 at 9:23AM

Lilla_D wrote: »

Correct, the asset would be passed to OP, but the father would get to stay in his home without the upheaval of a move, which might be his preferred option.

Let's also remember that OP mentioned additional debts to clear, so after the sale and debt payment, the father might not be left with enough money to buy something he likes in an area he likes. It's easy to say that downsizing is a sensible thing to do, but many people prefer to stay where they have been for a long time. It's for the family to decide what is right for them.

Also, if the asset is passed on this way, by effectively gifting his equity to the child, and the father survives it by at least 7 years, then the asset will be outside the estate of the father when he dies, so the inheritance tax liability will be reduced. For this, of course, professional tax advice should be sought, but this is my understanding.

either look stuff up that you just think you understand or stick to mortgages.

Keep_pedalling · 20 April 2017 at 9:24AM

Lilla_D wrote: »

Correct, the asset would be passed to OP, but the father would get to stay in his home without the upheaval of a move, which might be his preferred option.

Let's also remember that OP mentioned additional debts to clear, so after the sale and debt payment, the father might not be left with enough money to buy something he likes in an area he likes. It's easy to say that downsizing is a sensible thing to do, but many people prefer to stay where they have been for a long time. It's for the family to decide what is right for them.

Also, if the asset is passed on this way, by effectively gifting his equity to the child, and the father survives it by at least 7 years, then the asset will be outside the estate of the father when he dies, so the inheritance tax liability will be reduced. For this, of course, professional tax advice should be sought, but this is my understanding.

Assets only drop out of an estate if you no longer have a beneficial interest in them, so giving a home away but continuing to live in it does not work (although in this case it does not look like he has sufficient assets to worry about IHT anyway). He would also face the deliberate deprivation of assets issue if he ever needed care.

The OPs father's home would also be at risk, should they predecease him, or if they ran into financial difficulty or got involved in a expensive divorce.

csgohan4 · 20 April 2017 at 9:30AM

Lilla_D wrote: »

Hi, if your father is old, has low income and poor credit history, then indeed it may be a good idea to get the mortgage in your name instead of his.

However, if it's only you on the mortgage (and therefore on the deeds), it's not a remortgage any more, but an inter-family purchase, as effectively the house is passed onto you. (A collateral is an asset used as a back-up security for the purchase of an other asset - this is not the case here.)

When you do an inter-family purchase, you can do so at a lower price than the market value in order to limit the stamp duty liability. The mortgage will have to be affordable based on your income, outgoings, etc., but it is a possible solution. It's best to speak to a broker to find the right option and have a smooth transaction.

Don't forget deprivation of assets and Capital gains tax if it won't be your residence and you plan to sell.

As someone mentioned already the 7 year rule for giving way assets

http://www.ageuk.org.uk/home-and-care/care-homes/deprivation-of-assets-in-the-means-test-for-care-home-provision/

Tread carefully on this, money and family should never mix. If you do not intend to live there and therefore get a BTL, they generally don't accept family as tenants.

Don't get yourself into financial trouble because of family. He is after all an adult and it was his choice to be where he is now financially

Your father would lose a secured asset/home

Would your father consider downsizing to release some money? Equity is a possibility also but without it's pitfalls

Lilla_D · 20 April 2017 at 11:15AM

Coming back to what I said before, ultimately it's the family's choice to decide how they wish to deal with their assets, not for people on this forum to judge them for their financial situation or why the father would not downsize.

We are here to help OP by mentioning what they would have to consider:
- option for the father to downsize
- option to do an inter-family purchase, which has a number of consequences - e.g. father losing an asset
- what if OP dies first - e.g. having life insurance in place and a will to secure the father's home
- tax implications - e.g. stamp duty, IHT, capital gains tax
- mortgage limitations - doing an inter-family purchase with the father remaining in the home (it is possible on a resi mortgage, because resi mortgage allows a close family member to live in the property, even if it means that the current occupier father would remain there - I've done it before, so I know it can be done and it's not a BTL mortgage)

I'm sure that there are other points as well, but it helps if people keep in mind the helping intent rather than attacking each other.

Nathaniel_Essex · 20 April 2017 at 1:53PM

Hi guys, thank you for your response so far. Our original plan with a previous lender was to simply rake out a joint mortgage on the property with the title remaining on my father's name. This was progressing smoothly until the last minute when the lender said they wanted to do the remortgage and lease extension simultaneously so the deal fell through as I didn't have the income to do both at the same time.

Went to another broker and got the mortgage agreed and even paid their fee and a surveyor came around. The agreement I thought we had was for the mortgage to be under a joint application as I have decent credit and my father hasn't. Again, last minute, turns out there was a massive miscommunication error as they thought I was purchasing the house FROM my father. Not too much of a bad problem but that means I have to go through the conveyancing process which I was trying to avoid.

Lilla_D · 20 April 2017 at 3:39PM

Hi Nathaniel,

It's always useful to understand the background. By the sound of the first application, your father can get a mortgage, so his age and credit history are not that bad

, it's just his income is not enough by itself. That changes the picture, because then it's a remortgage with capital raising (to repay his unsecured debt) and indeed a number of lenders allow 2 applicants on the mortgage with the title being in one of the names only.

However, the lease extension is new information, but that should be checked by the broker upfront, i.e. how long is left on the lease and what the lender's requirement is in relation to it.

Re your last point, do I understand correctly that you're currently going through the inter-family purchase process, which you were trying to avoid, but is now underway?

getmore4less · 20 April 2017 at 4:03PM

Do you have another house or do you live in this one?

Having a mortgage on a property that is not yours

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free