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Situation:

My parents will retire in the next 10 years. They have a house provided for their job, but will not have anywhere after retirement.

They are very careful with money, and have about £100,000 in savings. They are now both working part-time and money is tight; they will have a small pension upon retirement.

They currently live in a 4 bedroom house with a large garden in the Midlands and I am keen that they do not suffer a large drop in living standards.

I have a good salary that more than covers my own family's expenditure (including mortgage on our own house), and I trust my parents absolutely with money matters.

I would like to offer a solution where we buy a house jointly and take out a joint mortgage with them providing the deposit and me making the repayments (as an investment).

Question: Would the mortgage company be happy to base the loan on my income without me living in the property? (Not buy-to-let.) Are there any other problems with the arrangement?


Similar question without satisfactory answer

Similar issue but USA focussed

  • The final arbiter of whether this is OK is the mortgage provider. It might be worth speaking to one or more providers to see what they say. – Steve Melnikoff Jan 9 '17 at 11:45
  • without me living in the property You might have to clarify this. If you were living in the property, it might have been smooth sailing. – DumbCoder Jan 9 '17 at 11:58
  • @DumbCoder. I have my own house with a mortgage. – Mark Perryman Jan 9 '17 at 12:10
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The first issue you'll find is that if you aren't going to immediately live in the house as a primary residence, this property counts as a "second home" or "investment property". You'll generally pay a higher interest rate, have a larger down payment, and qualify for less government-backed programs/incentives/subsidies than you would otherwise. The lending criteria on such properties is always more strict - and generally more costly - than an equivalent primary residence. Lenders won't really care that in 10 years you or your parents plan to move in - you can't be held to that, so they'll generally ignore that plan entirely. On a related note, you should be aware that insurance for the property will also generally cost more, but you'd need to get quotes to determine if that is at all significant in your situation.

You'll need to talk with a few potential lenders, but from a first read it sounds like it would be best "storied" like so: you and your parents want to buy a 2nd home or vacation home, which you'll share the use of (vacations, etc, and being converted to a primary residence later). It'll need to be clear what plan to use the property for - if you intend to rent out the home in the interim years then instead make that clear and state it will be an investment home; if it is what you are planning it might make it easier, as expected rent for the property will be considered. Saying you want a mortgage for a home no one will live in for a decade probably isn't a good idea, as a general plan anyway.

Either way, this can be called a "joint mortgage". When I was a loan officer we didn't use that term, but it's basically just a mortgage application with multiple people on it, all of whom are combined together to qualify for the loan. Everyone's income, debts, assets, and credit get included, which can work or one person's situation can cause the whole thing to collapse. From your description I think this could work for you, and one option is to set it up where only one of the parents is on the application if the other parent has problematic credit situation. Note that his possibility is often restricted by local law, so it may not be an option for you in your jurisdiction, but worth being aware of.

An alternative is you just buy the property and the parents gift you the down payment, and you list them as beneficiaries in will/trust in case something happens to you before they retire, but I don't know if that would make any sense in your situation. This is a single applicant mortgage, and it means only you are considered as buying it, which sometimes is the only option depending on your parents current financial situation. It's usually something you try if the other option doesn't work, but it's a fallback plan. Some lenders will allow guarantors (co-signers in US parlance), but this will vary by lender and locale - often what they actually want is a joint mortgage, not really a guarantor/cosigner.

Finally, you'll need to plan for what happens if things don't go as planned, regardless of what happens. What if your income changes, if either of your parents become deceased in advance of retirement, if they get a divorced from each other, or if either/both become ill or disabled and need assisted care?

Planning for such unpleasant possibilities (even if they seem crazy and not going to happen in your mind right now) can save you all a tremendous amount of heart ache later on when the unexpected (including things I didn't mention) pops up.

  • Thanks for the detailed answer. I think "co-signer" is a US concept (equivalent to guarantor? money.co.uk/mortgages/…). I was expecting something more like "joint mortgage" money.co.uk/mortgages/how-do-joint-mortgages-work.htm – Mark Perryman Jan 9 '17 at 17:54
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    @MarkPerryman I forgot about the synonyms between the systems, I'll update to make it better regionalized. Some are synonyms, and some don't have direct equivalents between the systems, but there are significant similarities. – BrianH Jan 9 '17 at 18:05
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    @MarkPerryman There, edited and made some corrections/clarifications. Been years since I was a loan officer, so my memory got rusty :) – BrianH Jan 9 '17 at 18:21
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    Also, if you will own a share of the new home worth more than £40000 in addition to your own home, there will likely be 3% extra stamp duty (unless completing before 26/11/2018 and the last transaction before the one we are discussing was selling a former main residence.. but I presume you only own one house now). – nsandersen Jan 10 '17 at 0:43

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