Hi all - after a bit of advice, or a firm no from those in the know.
Tiny bit of background on a long and sorry story - my recently divorced sister in law is living in a nice rented house near us - her ex pays nothing and has contributed nothing, and has kept his house through various means.
A house has come on the market nearby, and she's very keen, but neither she, nor my wife and I have a substantial deposit (10% at a push).
I was wondering how likely it would be that my mortgage lender would allow me to buy the house (stamp duty surcharge/ending holiday accepted) and release equity on mine to use as the deposit and buy the house for her to live in?
My loan to value is pretty low, so I could (in my wildest dreams) hope to release to get enough to get the LTV on the new property down. It would also allow the deposit to not be a hurdle to lower rates.
Is the above poorly thought out, or would there be a better way - I'm not sure owning/buying a house just before a recession hits is a great idea, and not sure if she would want me as a technical landlord, or how the perceived ownership would work, or how we'd transfer in future - lots of unanswered questions, but having an answer to the above would open/close that current avenue!
Thanks in advance :)
You could, if you felt it appropriate, after discussing with your wife and family of course, release whatever funds from your house, and use them to buy whatever you liked - if you decided to jointly own a house with your sister in law so be it.
However, it’s fraught with lots of difficulties and you would be liable for both your own increased mortgage, and a new mortgage.
Im not sure I’d be so quick to put myself in that position.
It's just a matter of time...
You'll be a hostage to fortune. Why can't she get her share of the marital home?
If you jointly buy a second home there will be a raft of affordability hurdles. Is the bank likely to believe you could afford the second mortgage if your sister in law couldn’t pay her share?
Give you don’t have a large amount of savings I suspect affordability will be the biggest problem.
There’s no easy solution here, you might be better off advising your sister in law to use her savings on legal advice on the shared assets and financial support especially if she has kids.
This could be a terrible idea but if you can handle the increase in your monthly mortgage you could take out equity to gift your sister in law cash, she can then buy the house as anyone else normally would with a gifted deposit. Not any different than how a lot of kids get a deposit when buying for the first time.
Depends on a few personal variables, but that's one option. More qualified people will of course give their input as some already have too.
Lenders are requiring greater deposits ( a lower LTV) and are required more then ever to consider affordability. As a second property you would typically not be able access the lower interest rates as the Probability of Default is greater. As a second property stamp duty may apply and if the predictions are correct you will soon be taxed as the owner of second property soon.
There may be other ways such as equity release but as stated above you then have two liabilities. Another option requiring research would be a draw down on your pension ( if over 55) for the deposit.
Are you certain your sister has exhausted the options to get value out of the former home? I have friends that have change lawyer and got a more equitable split.
You would need to talk to an independent mortgage broker who could go through your financial position and will then be able to advise what options you have regarding refinancing your house and or looking at bridging/short term loans. However, these options will take time to arrange, and will put you lower down the list of preferred buyers with the agent selling the house. Ie finances not in place.
Whilst taking equity out of your house may be a feasible proposition, depending on the lender, they may want to know what the additional borrowing will be used for. Using the funds for a BTL is usually okay, but that does not include housing a family member.
Sounds like you need both a mortgage broker and a separate lawyer to deal with the commercial side of arrangement with your family member. That’s once you have decided what each party would want from the transaction.
There sounds like a lot going on in all and looking to buy this house now, may be premature. I would say you do have options here but need agree on what both parties want before you can move forward.
I'd be seeking professional advice (financial adviser, mortgage adviser), not from a watch forum. Based on the limited information, I'd also be seeking additional legal advice if I were your sister, the settlement sounds far from equitable. Good luck in making the correct decision for you all.
I think the possibility of a 10% mortgage these days is very faint, I’d make that 15% as a minimum.
If the new house is going to be in your name you’ll have the additional 3% SDLT to consider.
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And presumably capital gains tax on any future sale/transfer? Topical as there’s been talk recently of this tax being brought in line with income tax rates, so a chunk of cash.Originally Posted by Troubled_Joe
Sorry to hijack.
When does a home become a marital home? Have a friend who has a house but got married etc. He pays everything and everything is in his name. She pays sweet FA and he intends to keep it that way. Is he being naive in thinking it will always remain his?
Yes he is. If he’s married and living with his wife in a house, then that’s the marital home.
Should they divorce then all the assets of the married couple will be split in any settlement. The wife would be eligible fir (at least) half and if she can’t support herself, spousal support for a period of time afterwards in order to get herself into a position where she could support herself.
Best to check with a marriage lawyer though.
Scary isn’t it. Why on Earth do we do it. Cheers and enjoy your Sunday
As I understand it, at least one lender is now looking at where mortgage applicants are sourcing their deposits, and getting money from parents isn't viewed as a valid source.
In a way - they see a risk in that it does nothing to show any ability to continue paying.
Not sure if any other lenders are going down this route.
https://www.totallymoney.com/mortgag...eritance%20tax.
We moved the back end of last year and the in-laws gave us a £5k moving gift. Wish we’d have never mentioned it as the in-laws had to jump through hoops to prove that the money they gave us wasn’t laundered etc. It took the solicitors about 2 weeks to do this with the in-laws having to visit the solicitors which proof of identity and bank statements and a letter saying the money was a gift and didn’t have to be repaid....all in all a pita
I agree with this. I’m the only person I know who has bought a house without parental/family help. I know
People that have bought houses but then can’t afford a dining table for instance.
My generation are getting themselves into a right pickle. That’s before any maintenance is needed.
Better they proved the origin of the £5k than move in, pay the mortgage, get served with an unexplained wealth order. That’s very unlikely for a small amount of money, but the lawyer is obliged to evidence the checks and several have had enforcement action for not evidencing the checks therefore they are keen to follow process.
If the £5k came from savings it’s easy to show the source and the bank can help with evidence.
I wrote a training book for mortgage related crime once and the innovative ways people launder through mortgages was impressive.
Last edited by joe narvey; 15th November 2020 at 13:34. Reason: Added clarity
Thanks for all the info everyone - yep, it's a watch forum, but it's good to get lots of ideas and possibilities from everyone.
Some good thoughts - and yes - *lots* of potential pitfalls. The ex is rather adept at avoiding all manner of obligations, so she's written that off and is forging a much happier life without him.
We've had a good walk through the numbers today - BTL with her as a tenant wouldn't work, plus the increased stamp duty makes it a painful option, plus how we'd transfer ownership once she sorts out funds, etc
One option we alighted upon was her mum selling her flat - not on the market yet - so we are considering the equity release on our house - we're at 38% LTV, so releasing a chunk would get her into the 75% band and lower monthly rates without increasing our monthly amount by too much. Then, when the flat sells, we get the amount back (unlimited overpayments - yay!) and the interest is covered. That seems almost ideal as the house would be in her name.
But.... would need to work out how the cash would be viewed by her mortgage provider (thanks for highlighting that above), and discuss with my mortgage lender tomorrow to see how they view it (normal equity release is for own-home improvements as i understand it - not sure helping someone else to buy another is in that spirit).
Thanks again all for the help - shut down some options and shed light on some other aspects that may have caught us out - we'll get mortgage lenders and seek legal advice asap.
Last edited by poloman; 15th November 2020 at 21:39.
I am not advising this but one way I have seen done is to just say it's a gift and square it that way. Later on when she remortgages she may want to gift you back the same amount.
Again, I am not advising this and there are probably much better (and kosher) ways of doing this, it's just what I've seen done before.
I filled in a related form last night and indeed there is a question as to where the deposit would come from.
good luck with that
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