Posted on 6 August 2012 by Brenda
I have a property worth £165,000 and owe £64,000 on the mortgage. Two questions really:
1. Would I be able to take some of the remaining equity and use as a deposit to take a mortgage with my son; or
2. Could I take some of the equity to use as a deposit for a buy to let arrangement with my son as tenant? He currently rents at £1,000 per month so could easily afford a mortgage but just doesn't have a deposit?
Whether or not you can release some of the equity from your property to use as a deposit is going to depend on how much you earn and whether you can afford the increased mortgage repayments. There are various affordability calculators on Bank's and Building Society's websites or you can find a basic calculator on the tab at the top of this page.
Once you have raised the deposit then the options come down to buying in joint names with your son, buying a BTL property with your son as tenant or your son buying in his sole name with you registering a deed of trust to protect your investment. You need to appreciate the different legal and tax implications of each and so have forwarded your enquiry to our in house solicitor's Rollingson's to give you an insight into these.
As far as the mortgage is concerned there are several lenders who have specific schemes aimed at parents helping their children and these usually rely on the lender taking a legal charge on your own property as additional security to the charge on the mortgaged property. Due to the higher level of security the lender's have you can borrow 95% or more of the purchase price. Lender's do not usually have a problem with you buying in joint names when you are not living in the property, so long as they can see that your son can afford the mortgage payments. If he can't then they will look to see if he will be able to in the reasonable future and you may be offered the choice of acting as his guarantor instead of joint mortgagor.
Buy to let (BTL) mortgages are not regulated by the Financial Services Authority (FSA) unless the property is to be occupied by a family member. The increased administration required to comply the FSA's rules and regulations means that a significant majority of lenders will not consider a BTL mortgage application if the tenant is going to be a relative and your choice of mortgages will be reduced if you decide to go ahead this way. However, there are still competitive deals available and so long as the anticipated market rental is sufficient to cover roughly 125% of the monthly mortgage payments you should be able to proceed if you wish.
I believe we can help you and that you would benefit from speaking to one of our independent mortgage advisers. Please call 0344 346 3672 and tell the consultant the date and title of your question, they will then be able to help you find the right mortgage for your situation.
Answers provided in response to Ask the experts are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.
We recommend you seek professional advice with regard to any of these topics where appropriate.