Call us on 0344 346 3672
or arrange a callback

Capital Rasing on 2nd Property to reduce Residential Mortgage Debt

Posted on 15 September 2010 by MR CHRIS.W.RADFORD


Our house is valued at £220k, our SVR mortgage with Northern Rock is £202k. I bought 1 house worth £140k with no mortgage 10 Years ago so my mother in law could live out her days rent free and it would be transferred to us on her death as her will says. We also bought my parents Leasehold flat 5 years ago on the same principle, this also has no mortgage and is worth £120k. We are now struggling with our repayments and need to reduce our Interest only mortgage. Can I re-mortgage my in laws house and we act as guarantors, (a 91k mortgage at low rate is appealing) and use the money to clear some of our interest only mortgage? Would we get a mortgage in today’s climate? If nothing is possible we will have to sell our dream home and move in with the mother in law. Any advice would be gratefully received.

Chris

On the face of it you should be able to raise capital on one of the other properties and use it to reduce the mortgage outstanding on your main residence. However, this will depend on the answers to a great many questions and even then it may not leave you in a better position.

As the property is held in your Mother-in-law's name you may have trouble arranging a mortgage due to her age, income or both. These are issues even with you acting as Guarantor and a Lender will also want to ensure that any mortgage is in your Mother-in-law's best interests and that she is not being bullied into taking it out.

I presume you have chosen £91,000 as a figure because this is 65% of the value of your Mother-in-law's house. This loan to value will certainly give you access to some of the cheaper rates on the market and once you have reduced the balance on you existing mortgage could reduce the monthly payments by as much as £550. Bear in mind that you would then have a second mortgage of £91,000 and this would reduce the savings by around half.

You also need to take into account the costs of setting up a new mortgage and check whether you are still within an early repayment charge period on your Northern Rock mortgage. I would suspect not, but you don't want to find yourself suddenly have to find £1,000s. The costs of a new mortgage could include a product fee, a valuation fee, solicitors charges and bank charges. There are deals on the market at the moment that would cover the majority of these for you but they normally come with a premium on the interest rate.

I recommend that you speak to an independent mortgage adviser about your situation. Following a full factfind they would then be in a position to research the mortgage market for you and calculate some proper figures about the possible savings. When speaking to them you will be asked for confirmation of the properties ownership, your Mother-in-law's age & income, your own income and expenditure details and how you intend to repay the mortgage at the end of it's term.

 

Peter

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.


Legal

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY DEBT SECURED ON IT.

John Charcol is a trading name of John Charcol Limited and its Appointed Representatives. John Charcol Limited is authorised and regulated by the Financial Conduct Authority. The Financial Services Register number is 665649. Registered in England No. 9157892. Registered office address for John Charcol Limited is 5th Floor, Cutlers Exchange, 123 Houndsditch, London, EC3A 7BU. The FCA does not regulate some investment mortgage contracts. Calls may be recorded for training and monitoring.