Mortgage affordability query

[css_jay99]

I have a niece currently selling her flat and buying another. Looks like the agent & solicitor have been pretty much incompetent resulting in the process dragging on for almost 6 months. Her buyer has given an ultimatum to complete by end of the month or they pull out. She will also loose out the property she was interested in.

She is expecting something like £100k equity to put into the new property. Her parents are thinking of loaning her that amount for new property as well as keep up repayments on old property till it eventually sells if current buyer pulls out.

The issue I see with this approach is the calculation of affordability since she will effectively have 2 residential mortgages on paper in the short term.

Is affordability based on information provided to mortgage lender?. I was thinking merely putting on paper she expects a rental income on 2nd property that covers the mortgage is enough to bring her affordability back in check or I'm completely wrong?

[Lance]

rental income won't help affordability as it's risky.
Also they would demand a change of mortgage to a BTL one even if the affordability was OK.

The £100k loan needs to be a gift. A loan is just a loan and counts against affordability as it needs to be repaid.

To be honest though, give the radiators a bleed and leave a DVD of Gladiator on the coffee table and the buyer will be willing to wait longer.

[NotAllThere]

When I'm given an ultimatum like that, I tell the ulimator to stuff it.

On the day of exchange of contracts, my cheque given to the solicitor hadn't gone through. The vendor of my vendor (I was at the start of the chain) phoned me telling me to get it sorted, or she'd pull out.

I told her to go ahead.

Funnily enough she backed down. Sorry. But when you're talking about hundreds of thousands of pounds, I won't be hurried. Or threatened.

My vendor was the BT account manager of the bank so pulled a few strings, and my cheque presented for special clearance was finally found under someone's desk... This was a while ago!

[JustKeepSwimming]

So to clarify.

Selling home at agreed price that would give £100k equity?

That sale is taking time, so in order to not miss out on the home they want the parents are going to lend them £100k to purchase that new home. When their home is sold the £100k equity will be paid back to the parents?

If so, no chance in hell, even if they commit fraud to claim the £100k is a gift and that the flat will be let out rather than sold.

Prices are falling, and if the buyer pulls out then she is very likely to find that the current market value of the flat has dropped substantially, if she can even find another buyer.

[css_jay99]

Sounds like she will be stuck with this for a while. Just spoke to someone who purchased a 2nd property last year. He said :-
1) The solicitors will need to know where the money comes from and the parents will need to show proof of how they got the money.
2) She will also need a consent to let letter from her current provider or change to BTL

[GJABS]

my cheque presented for special clearance was finally found under someone's desk... This was a while ago!

Literally under someone's desk?

[NotAllThere]

Literally under someone's desk?

Yes.

[vetran]

Literally under someone's desk?

Yep that is where the server is.

[Zigenare]

Yep that is where the server is.

Sucking in all the crap that should be hoovered* up!

*Other vacuum cleaners are available.

[Martin@AS Financial]

I have a niece currently selling her flat and buying another. Looks like the agent & solicitor have been pretty much incompetent resulting in the process dragging on for almost 6 months. Her buyer has given an ultimatum to complete by end of the month or they pull out. She will also loose out the property she was interested in.

She is expecting something like £100k equity to put into the new property. Her parents are thinking of loaning her that amount for new property as well as keep up repayments on old property till it eventually sells if current buyer pulls out.

The issue I see with this approach is the calculation of affordability since she will effectively have 2 residential mortgages on paper in the short term.

Is affordability based on information provided to mortgage lender?. I was thinking merely putting on paper she expects a rental income on 2nd property that covers the mortgage is enough to bring her affordability back in check or I'm completely wrong?

Potentially this is still salvageable.

First of all, depending on the lender, the deposit is likely needed to be a gift rather than a loan. The reason being is that should the bank ever need to repossess, there would be a conflict over who go their funds back first. A bank is unlikely to accept parents paying the mortgage as should they stop the payments, your niece will still be liable for them.

What your niece may wish to consider is renting her home out and approaching her current lender for a consent to let whilst asking to switch the mortgage to interest only. The reason being is that should their be periods when the property is untenanted, it will be easier to cover the mortgage payment. Double check with the solicitor but I believe an extra 3% of the new property purchase price stamp duty will have to be paid.

This just leaves the purchase lender to be satisfied that the property in the backgrounds rental income is enough to cover the mortgage. This will need to cover itself by a certain percentage threshold and depending on the bank, can often be evidenced by a letter from an ARLA (Association of Residential Lettings Agents) estate agent.