8

I have recently taken out a residential mortgage on a property that I live in with my family, the property belongs to my parents as they made the payments for the mortgage deposit and they also make the monthly payments (I contribute to this too).

The reason it was taken out on my name was because I have a decent paying and very stable job so my proof of income was better than anyone else's in my family as I can show payslips etc...

The worry I have now is that some day (and that day will eventually come) I would want to move out and get my own place, as I probably wouldn't be able to afford to buy a property on cash where I live (England) I would need to opt for another residential mortgage.

My question is will I have difficulty finding lenders for another residential mortgage? (considering I am currently paying off my existing one and will continue to be paying off the existing one for quite some time).

  • 3
    Yes it's possible (although more difficult), but I would reconsider the mortgage on your parents' home if you decide to move. Hopefully their financial situation and the amount owed will change enough that you can get out of the mortgage. – D Stanley Oct 3 '17 at 21:33
  • 2
    If you're not careful, remember you'll be hit with 3% extra stamp duty on buying a second home. – richardb Oct 4 '17 at 8:05
9

Legally allowed? Yes, absolutely.

The immediate problem that you will hit though is that you can only have as much mortgage as you can pay. This doesn't matter if it's one mortgage or ten. You can only have so much mortgage for your income.

As an example, let's say that your income today supports a 250K mortgage and you are currently borrowing 200K. When you want to move out, perhaps your income is enough to support a 300K mortgage and you still owe 150K on this one. Your second mortgage could only be 150K. Assuming that you want a house as nice as your parents' and prices have gone up, you might need to borrow 250K. Obviously these numbers may not match your actual situation, as I made them up.

You might be able to increase your income by listing the amount that your parents pay towards the house as rent. But then you would have to pay taxes on it.

It would be much better if you and your parents could pay down the mortgage considerably before you move out. Or if they could refinance in their own names or a sibling's name. Then you would have your borrowing capacity restored. You can combine those -- pay down the mortgage to the point where someone else can show the necessary income to finance the smaller amount.

Of course, if your job pays well enough, this might not be a problem. If your income can support the combined amount for two mortgages alone, there's no legal obstacle to doing that. Most people wouldn't describe that level of pay as "decent" though. So I'm guessing that this will be a challenge for you, as it would be for most of us.

3

Yes, while I no longer have, I had or was named on two residential mortgages for a while. But as mentioned by others, there are lending limits. (Note also that a joint mortgage will count fully against you in affordability checks required to take out a second one, where as a BTL one traditionally will not count at all!)

What I wanted to add was that you will also be restricted slightly by lenders - some will not lend at all if you already have a mortgage (one even if it is with a different lender).

Others will have smaller restrictions, for instance if the first one is a joint mortgage, then some lenders won't give you a second mortgage in your name only.

And others in turn only worry about affordability, but chances are you will be a bit more restricted on lenders/deals.

Finally, if it helps (not sure in your situation), some lenders will let a residential mortgage work as a BTL one in return for a fee and often, but not always, an interest rate increase.

2

Assuming your lender agrees, they may (UK example), apply both an income multiple to total available borrowing (i.e. overpayments might be considered disadvantageously) and affordability (assuming you pay services, insurance, taxes on both properties at the same time). They probably won't consider the equity in any of the properties as helping your application.

If you don't inform them, you might expect to see a condition in the offer that you only hold one mortgage at the time of draw-down (although most recently, that wasn't on my offer).

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.