Odd mortgage situation for first time buyer

[Ulti]

Hi Hexites,

Just need your help again!

I'm 24 and working in my first graduate job where I'm getting a half decent salary of £30-40k (won't expose exact details). I've almost reached a year at the company now so I'm hoping I'll get a slight bump in salary but I'm sure my salary won't be over £40k even with a raise. This means mortgage wise I can't really get much more than £140k-180k when it comes to a loan. I do have a good credit rating however.

Now the main spanner in the works is I want to get my own flat (I've been looking in the £150-200k range on the outskirts of London and I want to buy in the next few years), but at the same time my parents are in their early 50s so they will eventually want to retire and to buy a house. We own a family food shop but business has not been great over the last decade so they won't be able to get a great mortgage either. I have two siblings that are still studying and are much younger so they won't be able to help and they will be living with my parents. To make all matters worse we live in London where both house/flat prices and rent are rather crazy.

My parents want to buy a 3 bedroom property, and to convert the living room to a bedroom so that ultimate we have a 4 bedroom house. We're looking on the outskirts of London so have found some affordable ones which whilst are far from ideal, are still a house. My parents and I do however have a very large deposit which means we can use a broker to get a mortgage higher than what my salary would support.

I have been told that I could get the mortgage initially under my name to get a higher chance of acceptance and then later on, once we have sold off that place, my parents can find another job and work full time which should bring home more money. They're telling me the mortgage can then be transferred over to them. The reason they didn't already do that is because they had much more flexibility in raising my siblings whilst owning our own family food shop and the rent covered the whole property which means the bedrooms/living area upstairs. (We live upstairs)

Now my dilemma here is how will this affect my 'chances' of getting my own flat. If I already take a mortgage out and it gets approved and I do manage to transfer it to my parents then I don't think I am a first time buyer anymore which would make it difficult for me to get a place wouldn't it? I'm very wary of how that will work and trying to google it does not yield many results as it seems usually it's the parents that help the children and not the other way around...

My main problem is I don't want to be living with my family in a tiny house until I'm like 40 or something paying off a mortgage for them but on the other hand they can't work in the family shop forever and the rent just keeps going higher whilst business for them is rather hit and miss nowadays.

I know that was horribly written but hopefully it somewhat made sense! If anyone has a better solution than the one I'm currently presented with then please do share.

[EndlessWaves]

my parents can find another job and work full time which should bring home more money. They're telling me the mortgage can then be transferred over to them. The reason they didn't already do that is because they had much more flexibility in raising my siblings whilst owning our own family food shop

Interesting use of the past tense there. They had much more flexibility.

I don't know how much younger your siblings are, but if they're old enough to look after themselves on a day to day basis then perhaps it's time for your parents to revisit that decision.

It sounds like you're willing to accept the sort of property you can get with your own efforts. While I don't know how big the 'very large deposit' is, it seems well worth looking to see how the numbers would stack up if your parents decided to sell the business, and get jobs and a mortgage on the house they want.

Both if they stay in London and if they move to somewhere outside it's orbit with lower house prices.

[ik9000]

If you have any aspiration to get a new-build shared ownership etc be careful as SFAIK you will not be able to use the help to buy or similar affordable housing schemes if you have had a mortgage previously (As far as I understand the small print anyway). Also be careful as mortgage transfer is not straightforward, and again, if you're in a shared ownership situation I think even the transfer triggers the % commission to the developer/loan company. There are also rules about transferring property below market value. Should you get into financial difficulty and someone sue you/claim against your assets - even a divorce (SFAIK) the court can rule that the transfer (if not at market value) was improperly conducted and seek redress - to the detriment of your parents at that time. And if they can't pay the amount...

Also it seems very dependent on your parents getting themselves to the point where they are suitable for a mortgage in their own right. If something happens to interfere with that process - illness, recession, tighter mortgage rules, damage to the property while you own it - you will be left carrying the can.

I am mindful of the proverb : "One who has no sense shakes hands in pledge and puts up security for a neighbour."

Solomon's advice was thus: My son, if you put up a security for your friend, if you have shaken hands with a stranger, you are snared with the words of your mouth; you are taken with the words of your mouth. Do this now, my son, and deliver yourself; when you have come into the hand of your friend, go and humble yourself; plead with your friend. Give no sleep to your eyes, nor slumber to your eyelids. Deliver yourself as a doe from the hand of the hunter, and as a bird from the hand of the fowler.

the point being, don't get yourself into debts that others should rightly pay themselves. Steer well clear of it lest you take the cop for their folly. It's mentioned 3-4 times just in the book of Proverbs - it's a serious problem.

Do not be one who shakes hands in pledge or puts up security for debts; if you lack the means to pay, your very bed will be snatched from under you.

I know they're family, but it is far more sensible to get your own place, and then do what you can to help them via other means - loan, deposit assistance etc, than it is to risk -as you rightly point out - having to shelter the family in what would be your home, into your 40s. Crowded House is good if you want music, not so good for sane living. And I fear you would live to resent your family should such a situation come to pass.

In short, admirable intentions, but best avoided.

[ik9000]

also, if they are renting the premises and it's not going great "hit and miss" i think you put it, have they considered relocating the business to another area with lower rents?

[DanceswithUnix]

Transfer of mortgage sounds to me like an implied transfer of property, which I would worry would have tax implications. I would want to have proper expert financial advice before starting out on something like this, in case it all backfires horribly.

Sounds like you have a lovely supportive family there, but sometimes a firm no is the right thing and this might be such a legal minefield that this is one of those cases.

[Flibb]

Proper independent financial advice is not expensive, ask around and run through it with somebody that knows the markets. I did the usual online stuff for mortgages but ended up going paying for advice, the cost was around £350 they saved me around £1200. Don't get fixated on living in London, my wife works in SE London, but we live in West Kent. Quicker for her to get to work than people that live in London and are a lot nearer. The company I used are well established, have a physical office, and were very helpful getting us a very good deal.

[kalniel]

but at the same time my parents are in their early 50s so they will eventually want to retire and to buy a house. We own a family food shop but business has not been great over the last decade so they won't be able to get a great mortgage either.

How do you know? 25 yr term mortgages are a relatively new thing in the grand scheme of things. If they have a large deposit then it works very well in their favour.

I have been told that I could get the mortgage initially under my name to get a higher chance of acceptance and then later on, once we have sold off that place, my parents can find another job and work full time which should bring home more money.

This doesn't make much sense to me. If you need your parents future contribution then it's not going to be easy for you to get a mortgage without naming them in it anyway.

Definitely go talk to an advisor or two. And/or The money saving expert forums - they love talking about interesting mortgage scenarios. I prefer things nice and tidy so I'd say there are a few obvious alternatives:
1) You buy the house, and let it to your parents. The additional income from the letting will increase the mortgage you can get. I'm sure there's a term for the kind of renting where the landlord lives in as well, but can't think of it at the moment.
2) You jointly buy a house with your parents. Mortgage suppliers might be a bit sniffy about this compared to a couple, but it should be possible, and again in their eyes helps combine the positive points of both your and your parents mortgage situation.

Now my dilemma here is how will this affect my 'chances' of getting my own flat. If I already take a mortgage out and it gets approved and I do manage to transfer it to my parents then I don't think I am a first time buyer anymore which would make it difficult for me to get a place wouldn't it?

I don't really think so. The main difference is access to help-to-buy type schemes, which I think are of dubious value (possibly the new ISA is the only one not). In terms of buyer eligibility it makes virtually no difference - the positive thing about a first time buyer isn't the mortgage, it's the lack of chain below so that they can make a purchase quickly. Whether you've *had* a mortgage in the past doesn't affect this, only your current situation of how quickly you can buy vs having to wait for a house sale before you can buy.

[ik9000]

I don't really think so. The main difference is access to help-to-buy type schemes, which I think are of dubious value (possibly the new ISA is the only one not). In terms of buyer eligibility it makes virtually no difference - the positive thing about a first time buyer isn't the mortgage, it's the lack of chain below so that they can make a purchase quickly. Whether you've *had* a mortgage in the past doesn't affect this, only your current situation of how quickly you can buy vs having to wait for a house sale before you can buy.

I think there are some tax subtleties and legal stuff that can complicate a buyer no chain vs a genuine 1st time buyer in the solicitor stages which SFAIK is why estate agents differentiate between the two.

Re the buy-to-let stragey - this incurs different mortgage rules, and requires a larger deposit, and some lenders also require evidence of a maintenance pot / emergency fund to cover periods of no occupancy and essential repairs. Similar hikes in requirements apply to mortgages dependent on a lodger strategy. Many mortgages explicitly veto it, and entitle the lender to a share of profits should this be adopted. I.e. if you need parental income in addition to your own to pay the mortgage you need to declare it up-front or you could be in a whole world of pain later on when they find out.

[b0redom]

1) You buy the house, and let it to your parents. The additional income from the letting will increase the mortgage you can get. I'm sure there's a term for the kind of renting where the landlord lives in as well, but can't think of it at the moment.

Be very careful if you proceed with this. Residential mortgages are much cheaper than B2L mortgages, subject to different multiples, and also rental income multiples. You will also incur lots of 'hidden' charges eg. yearly gas safety cert, (probably) requirement to do self assessment tax returns etc. You will also be subject to income tax on any rental income BEFORE taking the mortgage into consideration, so you have to either charge your folks more than they'd otherwise pay, or take the tax hit yourself, and you can't necessarily just swap from a residential to buy to let mortgage.

In addition if you do go ahead with this, your own personal property which you buy will be subject to the new additional 3% stamp duty as it will be your 'second' home.

Transferring ownership of a property to family members is, I suspect, a tax and legal minefield.

As others have said, get some professional advice....

b0redom

[Ulti]

Thanks for the help everyone! Very useful information as always.

It's a difficult decision that I don't really want to make as it's almost like choosing between living my own life or supporting my family but I simply can't just leave them there. They've been here in this country for as long as I've been alive in this world but part of me just wonders why they can't just continue renting for another decade or so then my brother would be the same age as me (he's 10 years younger than me!) and he would be able to fend for himself too. He's a smart little one so I trust he'll be able to easily support himself financially when the time comes. 10 years down the line I reckon I would be somewhere along in my career and then perhaps I can support them then. However on the other hand it looks like even if I did manage to start earning a 6 figure salary (money isn't everything but hey I can dream right) it doesn't seem like that would get very far either in terms of what loan I can get if I'm applying the 4.5x loan to income ratio if I were to support two properties... (I can't imagine how expensive house will be in 10 years time!)

But hey, life isn't meant to be easy is it?

[ik9000]

They are your family, but you are not responsible for supporting them at all costs to your detriment. They need to stand on their own feet and not potentially cripple you just because they want to own something they can't currently afford. I'd love to own a car, but I can't currently afford one and I'm sure not going to cripple my family in demanding they get me one because they'll only become more expensive in the future. So will insurance, petrol and road tax. If I can't afford it now, it's unlikely I will be able to soon.

Let me ask you this: Will you be happy in 10 years if your brother goes off and buys his own flat, but you're stuck with the parents in your house, with them still unable to meet mortgage lending criteria, and you unable to buy a place of your own. Do you want to be in your mid 30s and have to tell everyone you date that you live with your parents and it's your house, but no you can't just throw them out, and that's cool right - she/he doesn't mind moving in with the in-laws? I'm sure they'll leap at the chance, after all who doesn't want to start married life worrying about the parents hearing you at it through the walls and interfering with every life decision you need to make.

Let me also ask you this: Whose house will it really be? Who will call the shots, pay for the maintenance, decide what appliances you have, what ISP, what carpet etc. Who gets to do all the admin and the bills, and dealing with the neighbours when their cat craps on your lawn and their tree is pushing over your fence? Who will be listed as the occupant, and who a dependent on the census? I don't know how your family works, but I can't see many cases where owner status trumps familial heirarchy in the day-to-day. I can see a real risk that you'd be paying to have all the downsides of living with the parents as an adult, but none of the usual benefits of reduced rent, help to save a deposit etc. It's stifling your independence - and will shape your future options in ways you really might not appreciate. Are you happy this won't lead to resentment in years to come?

A third question: what happens when your job needs you to relocate in 2 years time? It's just happened to a friend of mine. Whole office closed, city relocation etc etc. Some of the staff have to up sticks to California.

[Zak33]

My main problem is I don't want to be living with my family in a tiny house until I'm like 40 or something paying off a mortgage for them but on the other hand they can't work in the family shop forever and the rent just keeps going higher whilst business for them is rather hit and miss nowadays.

I know that was horribly written but hopefully it somewhat made sense! If anyone has a better solution than the one I'm currently presented with then please do share.

two things:

1) Blood is blood. Family is family.
2) Decide if you can TRUST the blood links... can you trust the family to not ruin your future.

AFTER you've made those very large mental decisions....move forward accordingly.

[ik9000]

can you trust the family to not ruin your future.

If they are pressuring him to helping them get a mortgage they can't otherwise qualify for, and negatively affecting his ability to get his own place and independence from them, that is not healthy, and is hardly fair.