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With savings and pension funds depleted by the recent economic turmoil, pensioners are looking for other ways to supplement their pension and many are using their house as a way of generating cash. More...
Buying in the family?
Monday, 18 Feb 2008 11:13
A reader from Wigan is planning to buy his late mother's home after his brother couldn't meet the mortgage repayments. However, he wants some tips before moving forward with the deal.
Simon Webster, managing director of
Facts & Figures Financial Planners and part of our team of Independent Financial Advisers (IFAs) from
unbiased.co.uk, offers a helping hand.
Warren asks:
When my mother died, my brother was living with her. We decided he could have the house and he took out a mortgage for what he could afford.
Since losing his job he has fallen behind with the mortgage repayments to the tune of almost £4,000.
He has now decided he can't manage the cost of a mortgage and so my wife and I have paid the debt and are looking into buying the house ourselves with my brother's full consent.
We have made an appointment with our bank but were curious as to what the process is.
Simon from Facts & Figures Financial Planners replies:
In truth buying a house in this situation is no different to buying a house in any other - you are the people who are assessed for affordability and credit score, and so as long as these stack up, your brother's problems are not an issue.
The fact you are buying from a family member may require explanation to the lender but as long as you are buying at full market value this should not be a problem.
If you become the owners of the house the question is will you let it out or live there yourselves?
For owner occupation you may be able to borrow up to 100 per cent of the lower of purchase price or valuation subject to status - but there may be a hefty mortgage indemnity guarantee premium to pay with some lenders - in addition to their arrangement fee.
On a buy-to-let mortgage the most you can usually apply for is 85 per cent - subject to rental cover. Typically the monthly rent forecast must be 125 per cent of the monthly mortgage cost.
It is always advisable to borrow as little as possible and to make sure you are as certain as you can be you can afford the cost of any mortgage before you proceed.
Will your brother continue to live there?
Technically a lender will require the property to be vacant on the day you buy it (known as vacant possession) and as such he may need to move out for one night and then, if you intend he should live there, he will have to sign an assured shorthold tenancy.
If he is taking the money and moving on then this will not be an issue. But be aware letting a property to a family member can be an issue for some lenders.
In all cases we always recommend clients seek specific advice from a fully qualified mortgage IFA such as ourselves.
In our case we charge a fee of £250 per case, but then we receive a proc fee from the lender which covers the cost of the balance of our time. For that you get access to pretty much the whole market, advice on the best deal and you can transact by post/email.
It is worth underlining that far from being a more expensive option we access all the deals available on the high street plus a lot of deals that aren't, so using a mortgage IFA can add real value, and may work out cheaper overall.
If you have a personal finance question for our team of Independent Financial Advisers (IFAs) from unbiased.co.uk, go to the myfinances.co.uk Ask the Mortgage Expert section.