Secured loan or remortgage?

13
Found 8th Mar
My parents are wanting to help my younger brother onto the property ladder, and I don't want them to get tied up into a bad scenario. So, I'd like to know which is the better choice.

The plan is they take out a loan or remortgage, buy a house in my brothers name, he then in turns pays the loan/remortgage.

They are willing to either take out a secured loan against their property to value xyz, or remortgage. Trouble is they are 10 years away from retirement age, and I know most of the big banks will only allow you to remortgage up until retirement age. While this is a possible avenue, the monthly repayments will be very, very high.

So, would taking out a secured loan be the better option? Ideally the length of loan/mortgage would be 20 years. Would it be better to go via a mortgage broker?

Thanks
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13 Comments
Well complicated this.
Re, Mortgage close to retirement. I did this with 9 years to run a couple of years back. So long as the Loan to Equity is low and they have steady income, this shouldn't be a problem.
If they buy the house in their name, it will effectively become a buy to let and incur income tax etc.
If they loan the money and the house is in the sons name, a simple and straightforward loan agreement needs to be drawn up defining repayment schedule, interest (if any) and term of the loan. You need to look at the 'what if' scenarios going forward, like potential wifes/partners/kids to make sure the capital is safe.
They could simply act as guarantors, but would be liable for the debt if the son defaults.
They could do something called 'joint borrower, sole proprietor', has the advantage that the parents retain an interest in the actual house being mortgaged and so can reclaim their capital from any sale after a default.
There is also a relatively new product that allows parents to use their savings to back a mortgage for a child, effectively it becomes an Offset Mortgage. I think it lowers the income requirements for the buyer.
Needs a bit of thought to protect the parents assets.
Before we talk about money, my first thought is why buy a property and put it in your brother’s name. If he defaults on the loan at any point especially when your folks have retired then there is no way that your folks can have any influence over selling the property (or renting it out) to pay the loan or mortgage back. Also, how do you feel about it. Did they do the same for you and if anything happens to them would your half any inheritance be in theory a lot less than your brothers portion? Nothing splits a family like a fall out over money or property in my experience.
Edited by: "Toptrumpet" 8th Mar
I recommend your parents amend their will to add a clause relative to the loan/guarantee because the loan/mortgage will be outstanding for a while.

Look at options with a mortgage broker and discuss options with the solicitor who will be amending the will...I am sure there is an elegant way to structure the loan fairly and safely for all.
Are you talk about them buying a house out right or the deposit for a house?

If they buy a house in your brothers name. The money they put in his name will be liable for tax as you can only give a maximum of £3000 as a gift (or £6000 if you have not used the previous years allowance).

If they were to buy the house with (so named on the deeds) they would have to pay an extra 3% stamp duty as it would be a second property.

What if your brother gets married and then divorced? The wife would be entitled to 50% (or more if they have children) of the house.
Check with solicitor but they could loan the money for the deposit and then put a charge on the house in case it needs to be sold in the future.
Really your parents shouldn't be doing anything more then putting down money for a deposit or they are really opening themselves up to trouble down the line.


Think about it, what happens if;
Your brother loses his job or wants to move area?
Your brother decides to remortgage his property and spent it all on travel, booze and entertainment?
Your parents die?
don't do it tell him to stand on his own two feet...
Thanks for the helpful comments. I’d like to keep the topic to the question in hand if possible, I appreciate people’s concerns, but I’d like to keep the “what ifs” for someone else’s thread.

Cheers all.
What about your brother applying for a mortgage himself and your parents are added as guarantors.

Also, if your brother is a first-time buyer then he might get some first-time buyer benefits.
Brother has never had any type of credit. No credit cards, no direct debits, no loans, no nothing. Zero credit history is as bad as no credit history.
Either way, just looking for advice re: loan or mortgage.
BadMF3 h, 24 m ago

Brother has never had any type of credit. No credit cards, no direct …Brother has never had any type of credit. No credit cards, no direct debits, no loans, no nothing. Zero credit history is as bad as no credit history. Either way, just looking for advice re: loan or mortgage.


Best thing he can do is get a credit card and some bills like insurance on credit and pay them off each month for a year and save up some money. As for your parents if they want to give him a deposit then they should remortgage their house to provide a sum of money (that they can afford within their mortgageable years) and then give it to him. That way they only have to make sure they pay their mortgage and he has to stand on his own two feet and pay his mortgage. They should not put their name or agree to pay any of his mortgage other than giving him the deposit. They need to protect their assets.
cmdr_elito1 m ago

Best thing he can do is get a credit card and some bills like insurance on …Best thing he can do is get a credit card and some bills like insurance on credit and pay them off each month for a year and save up some money. As for your parents if they want to give him a deposit then they should remortgage their house to provide a sum of money (that they can afford within their mortgageable years) and then give it to him. That way they only have to make sure they pay their mortgage and he has to stand on his own two feet and pay his mortgage. They should not put their name or agree to pay any of his mortgage other than giving him the deposit. They need to protect their assets.


Meant to say they will get a better interest rate deal on a mortgage than a loan.
If your parents have the facility to get 40% deposit for the property for your brother (either in cash or remortgage) and use it as a deposit for a buy to let mortgage, they should easily be able to get a BTL mortgage that goes beyond retirement age. There will be extra stamp duty on the buy to let property, but it is a way to have 60% of the property value for your brother's property with a term beyond 10 years (up to 30 years). It is also possible to get interest only buy to let mortgages.

So 2 mortgages is a option worth looking at
Edited by: "OllieSt" 9th Mar
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