Mortgage advice - what is the best way around this

[sparechange]

The situation: mine and DH's mortgage is about 60% of the value of our house. Repayments are about 1/3rd of our joint income, but about 3/4 of mine if I had to pay it all myself (this might be relevant!). We are currently in the process of remortgaging our house, and the bank's affordability calculator has said that we could borrow about £120k more than we currently do, so some wiggle room there...

DB and his girlfriend live together nearby in a horrible flat. They've just been told the communal lounge is being turned into an extra bedroom so they have a kitchen plus bedroom. Rent is staying the same. They've looked locally and they couldn't really get anything cheaper that is a reasonable commute for both of them.

They both earn reasonably well, but nothing near enough to buy something. I would therefore like to buy something with/for my brother and have seen a 2-bed flat nearby. We have said the set up would be they are responsible for covering the mortgage each month, so could chose whether they rent out the second room and pay less, or pay have the place to themselves. They would also be responsible for all repairs. Ideally, DB and I will get a joint mortgage and I put down the deposit. We've agreed who gets what equity if/when the flat is sold, and I trust him 100%.

Because of tax implications plus the higher interest costs, I really don't want to get a Buy To Let mortgage, but if I apply for a joint mortgage with DB, they will take the entire repayment on my mortgage (ie assume that DH doesn't pay any of it) when working out how much to lend. The affordability calculator will come up with a 'worst case scenario' where I'm paying both mortgages on my own, and will knock me back, as both repayments would be roughly equivilant to my total take-home pay each month

Is there a way around this?

A friend suggested applying for the mortgage and telling them DH and I are splitting up and our house is being sold, with him staying on and paying the mortgage until that happens, which means the bank will disregard my main mortgage payment. I'm a bit concerned about that level of lying, but she said that reconciliations happen all the time, and the bank won't care as long as the mortgage is being paid, and as my brother will be a joint applicant, and will be living there, they can't port the mortgage to a buy to let one. This seems too good to be true, but I don't know how to investigate it without ringing alarm bells..!

Does anyone have any good ideas? I don't want to talk to my mortgage broker at the moment, in case she smells a rat and it jeopardises our remortgage...

Banks aren't stupid- they will see straight through your friend's story.

Up until your name is no longer on the mortgage/ deeds on your first house, those repayments will be factored into any other mortgage calculation/ application.

Whilst your intentions are very honourable and generous it doesn't sound like you have sufficient wiggle room to make this offer.

Have you seen a mortgage broker about this? They look at mortgages across the whole market and may find something that you could do.

Do not lie though as that is committing fraud and could get you into big trouble.

Why don't you just call another broker and ask what they adevise?

Or you could take out another £120k on your existing mortgage? And your brother does the same?

Wicked, we don't want to increase our mortgage any more, because it would put us into a higher LTV, which would mean a higher interest rate and therefore higher payment for us, on top of the additional mortgage, IYSWIM? We are on a quest to pay off our mortgage as soon as reasonably possible, so have it on a shorter term, which we can only do because our LTV gets us into a cheaper interest bracket.

Skye, I've been having a look on MSE threads, and the worst I can see happening when banks find out someone is using a owner/occupier mortgage for BTL is they move them onto a BTL product (and possibly back date the difference in interest). When you say 'get into big trouble', can you explain what sort of thing?

Bear, when we sold our last place to buy this one, we just had to tick a box to say our previous property would be sold. We didn't have to provide any further proof than that but it was before the rule changes. Is there a period after taking out a new mortgage that they check you aren't listed on any previous/other mortgages?

Head in hands here - a lot of what you are suggesting OP is fraud and could jeopardise your mortgage if things go wrong (mortgages are over a life-time - sickness, separation, death...)

You need to speak to a broker as there are more sophisticated mortgage products out there (I am not a broker BTW) eg. 'Family mortgages' cited in this article: www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/11355595/Mortgages-where-parents-help-children-buy-homes-do-they-work.html
Good Luck!

I meant about the lying that you are your H are splitting up and that he is solely liable for the mortgage. You would be committing fraud if you did this.
You would probably also have to provide proof that you are no longer connected to that mortgage.

Taken from a legal website *Individual purchasers can commit mortgage fraud by obtaining a higher mortgage than they are entitled to by providing untrue or misleading information or failing to disclose required information. This may include providing incorrect information about:

identity
income
employment
other debt obligations
the sources of funds other than the mortgage for the purchase
the value of the property
the price to be paid and whether any payments have been, or will be made, directly between the seller and the purchaser*

Aside from the fact that getting involved in other family members financial affairs frequently ends badly, The whole mortgage lending market has changed massively and they no longer dole them out to all and sundry as was the case in the past.

Your idea is absolutely littered with problems:-

Where's the deposit for the second house coming from?

Where does the girlfriend fit in? You said both her and your DB earn well so presumably her salary will be needed to pay the mortgage although her name wouldn't be on the mortgage- what happens if they split up - your DB wouldn't be able to pay the mortgage on his own and she might demand her share of any equity in the property as she's paid the mortgage.

As others have said, Purposefully lying in order to get mortgage is fraud- if it is found out the mortgage could be recalled or, if it happened between exchange and completion, your mortgage offer would be withdrawn but you be legally commited to complete or lose your deposits plus costs.

What happens at the end of the fixed term of the mortgage if your DB and his girlfriend still can't afford to take on the property on their own?

Ideas like this only work if you are financially secure yourself- unfortunately having 60% LTV and one mortgage alone being your entire take home pay does not put you in a position where you can help your brother out.

Bear
The deposit is coming from savings I have. It is enough for about 15% of the purchase price, but I could possibly stretch to 20% by liquidating some investments.
The flat is 2 beds. If the 2nd room rents for market value, there will be about £500 a month left to find. This is easily paid by my brother on his own. The girlfriend will have no legal claim to any equity, and would be willing to sign something to that affect.

I've just played around with the numbers and DH and DB would be able to get the mortgage together, as his salary could easily pay both mortgages with enough left over, which should satisfy the affordability calculator and the underwriter. I think I'll speak to a broker about it once our remortgage has gone through, as they'll have all our paperwork on file still so can play around with things.

Thanks for your help. The MSE threads I had read downplayed the 'fraud' element so I wasn't really seeing it as that, especially as I still can't really find much evidence of detection or penalties. But on balance, it isn't a risk worth taking if we can get the same mortgage with DH's name on it instead of mine.

Can you not 'gift' your DB the deposit so he can get onto the property ladder?

Presumably if you aren't going to actually be paying the mortgage for them, they will pass the affordability criteria themselves.

You don't sound like you are in the financial position to be buying houses for people tbh. I'd want to own more than 40% of my own house before I started being flashy with my cash for other family members. Could you help him find a nicer rental property?

Wild, that wouldn't work either
Even with the deposit, his salary won't get him enough of a mortgage to buy the flat. It is frustrating to see them both paying rent that would easily cover the mortgage payment, especially with savings that would pay for a deposit.

Financially, we are in a very secure position, with good salaries, pensions and savings, which is why I feel very comfortable with any additional risk that comes from potentially taking extra mortgage liability, especially given the little additional risk it places on me.

Far from being 'flash with my cash', I'm looking out for someone I'm very close to, who does a job that doesn't really exist outside London so isn't in the position to relocate for housing, and is stuck in a crappy rental in the mean time. I'm not going to top up his rent to allow someone else to take advantage, nor would he accept any offer like that, but buying somewhere with him seemed like a good idea to get him and his gf out of their rental situation.

The Woolwich Family Springboard mortgage looks like it ticks our boxes, thanks babel for the link to that article

as bear says, they are really clamping down now based on ability to pay a mortgage rather than how much you can borrow. i would hate to see you get into trouble because you try to lie your way through it, it is never worth it.

Just make sure that you own the property as tenants in common, so that you and your DB each have your share registered and its not just assumed 50/50 and if his gf is going to sign that she is not contributing to the mortgage and therefore has no claim, then make sure that it is water tight in order to protect yourself and DB.

You also need to take on board the fact that if DB can't pay for any reason, then you become liable for the payments as the other mortagee.

It is a great thing that you want to do this to help him, but make sure that you have everything covered legally. I wanted my DB to come on my mortgage after XH left as i couldn't borrow enough to keep my house, but he refused as he didn't want to be tied to a mortgage on a house that wasn't his. he did however lend me the shortfall between what was owing on the mortgage and what I could borrow to remortgage.

I'd speak to the broker before you finalise your remortgage.

If this plan is going to work and if you have assets you are willing to liquidate to facilitate it there might be a better way of structuring your remortgage and the new application.

I still don't really see what your DB and especially his girlfriend are bringing to this deal but if you are happy investing your savings in something that could very easily go badly wrong that's your call.

Skye, Bear,
Thanks a lot.
I've done a bit more poking around and Halifax offer a '2nd home' mortgage, which seems perfect, and will lend more than we need based on my basic income plus DB's, and taking into account my mortgage commitments

I guess this is the sort of product that people would use to buy a holiday house?
The interest rate isn't remotely competitive as a residential mortgage, but is still less than a BTL, and only needs a min 10% deposit (compared to 40% for a BTL)

The rental market in London is so nuts, especially for shared flats, that I have no concerns over letting out either a second room or both if DB can't pay for any reason. When their landlord announced their sitting room was being turned into a bedroom, they had 40 people come and see the room over a weekend, with more than half of them willing to take it and move in straight away. It is mind boggling, but also why I want to see them out of there!

You can't have two residential mortgages, can you? I'd expect to pay a higher interest rate on the second mortgage!

OP you really need to speak to a broker about this. It is a regulated industry so brokers are not allowed to give you advice on the Internet.

I'm not a broker but from my limited knowledge of mortgages I don't think either of the products you mention are what you need.

The Woolwich one would still need your brother to come up with the deposit and be able to pay the full mortgage - you just put up security to facilitate this.

The second home one from Halifax doesn't sound like it would allow a third party (your brother) to be on the mortgage thus you'd need to be able to afford it yourself/ with your DH then informally rent it to him.

You can't just keep stabbing around at finding a product that 'might' work. Speak to someone before you finalise your remortgage as your options will be much more limited afterwards.

I still don't really see what your DB and especially his girlfriend are bringing to this deal
My savings are currently getting zero interest and doing nothing. Investing them in a flat, which will increase in value, means they are put to work. Buying with DB on the mortgage means I wouldn't have the same tax liability as I would with BTL, either monthly or from CGT.
At the same time, DB gets somewhere significantly nicer to live, for the same as he is paying now. Win/win

^^ but the massive difference is, you won't be able to liquidate those savings if you ever need them without your brothers consent and he may never be in a position to buy you out.

He and his girfriend are getting all the upside with no risk attached.

You may never see your savings again- not a risk I'd take but each to their own.

Also, not sure what you mean about your monthly or CGT aliability being different to a BTL.

What monthly income are you expecting from this?

If and when it ever sells it would be classed as a second property so youdbe liable for CGT as if it were a BTL.

Bear, We have investments which could be liquidated, but I really don't have the sort of relationship with my DB that could be risky. Without going into levels of outing detail, he has proven himself to be totally and utterly trustworthy and honorable over financial matters in the past so I don't see it as a risk.
However I know we can get legal documents drawn up to protect both of us in any event