Borrowing against parents house to buy flat?

[tinawe]

Is there such a mortgage where you could borrow against your parents house as collateral?

My parents really want to help me get on the housing ladder. But firstly rates are so expensive at the moment, and secondly, I don't have a big deposit yet. But I am wasting £25k a year on rent.

I live in London and need to live here for work and family. Not interested in moving to Zone 89 or to Kent. Maybe when I'm older.

Currently aged 27 and in a well paid graduate job (c120k). Looking at flats between £500-600k.

My parents own two properties. One is a buy to let worth about £350k and their home is worth about £1.3 mil.

Is there a way to use their property as collateral to buy? They don't want to sell up.

Aware I am in a better and more fortunate position than most, but London is crazy expensive.

A guarantor mortgage?

If they trust you and you got a loan agreement drawn up they could potentially remortgage their property to the amount you require for a deposit. You would effectively be then paying 100% mortgage (their mortgage for deposit plus your own mortgage), this would likely give you a better mortgage rate than a guarantor mortgage and would likely have the same risks - their home would likely be at risk if you defaulted on a guarantor mortgage

They can give you money for a deposit. They cannot loan you money for a deposit. This would mean you had two loans and the mortgage company will ask where the deposit came from. So it cannot be mortgaged money in your name either. They could take out a mortgage on their own home but again it's borrowing for a deposit. It's a Shane they haven't saved anything for you. Any grandparent with money? You don't need to spend £500,000 either! There's plenty of zone 2/3 properties for less. If you were sharing a property you would not be paying such high rent and you could save. You need to adjust your spending.

No 😊

Would they be willing to remortgage a % of their rental? If so, you could look at a springboard mortgage with the funds.

You'll not be able to borrow a deposit as most lenders don't like anyone else having a potential interest in the property in the case of a repossession.

Yes there’s a way of doing it - they get a mortgage on one of the their properties and give you the deposit. If one property is a BTL property, a BTL mortgage won’t look too closely at their age/income as long as the rental income covers the repayments. You can’t take out a mortgage on their house because you don’t own it.

It will have to be a gift, otherwise it will be included in the affordability calculation. However there is nothing to stop you choosing to give them an equivalent-sized gift in a few years’ time when you sell up, or you can give a younger sibling a similar sized gift when they come to buy, or they can write into their will that this gift comes off your inheritance (eg if you have other siblings).

See advice attached. It's any borrowed money for a deposit and just because op won't pay it back, it's still borrowed money. It's just a bad idea. You have to declare where the money came from. So parents owing money and passing the money raised over to the op will still result in questions and possibly lies in response.

Plus we gave DD a substantial deposit and she had to declare where it came from and did not need us or her to repay it.

I hate reading this. It’s perpetuating the cycle of homes being completely unaffordable for young people (or any people, really), and if folks keep getting their relatives (retirement) money, in one or two generations time, we’re going to find ourselves living in multi generational houses. I think that happened in Japan? Or it’s something else obscene, like children inherent their parents mortgages because they are 80 year terms.

I am really sorry OP. This is by no means a dig at you personally.

Is there another way?

Kent is not THAT bad - at least, as a starter place anyway.

I hope you find a way to secure a home.

@KievLoverTwo

What's so wrong with multi generational living? It's actually a very good model for older people. The rush for people to buy on their own with no partner is a big issue too. Two salaries and two people saving makes a huge difference. If op is paying £2000 a month rent that's probably on her own. Why not flat share? It halves the price. It's a great problem that young people cannot save up on £120,000 pa and then want parents to borrow. It's foolhardy.

If I had lived with my stepdad past the age of 30 he probably would have ended up six foot under and with me in prison.

Not all families are happy and it’s an even worse prospect when there is no other apparent choice. That’s unhealthy. People being forced to lived together because money dictates the need.

The rush for people to buy on their own with no partner is a big issue too. Two salaries and two people saving makes a huge difference.

A generation ago, people bought on their own and sold two starter homes to buy a family home when they married.

Two people saving to push the price of starter homes up and up, and then extend it when they have a baby because they can't afford to move into a bigger home is not the answer.

It's just removing starter homes altogether because nobody wants to sell a 3-bed extended home for the price of the two beds starter they bought it as.

You can't borrow against a house you don't own - they could and gift you the money

You earn £120k and can't (won't) save for a deposit? That is your problem right there.

What young single woman who works in central London wants to move to Kent? And I don’t see anything wrong with what she’s trying to do.

op, your parents can mortgage their property, you cannot mortgage it.

Huh> she said she doesn’t have a big deposit yet, so she is saving. But it could take years.

There were not starter homes years ago. No such thing. Many single people could not buy a house. Most of our friends could not do this 45 years ago unless parents helped. They had to wait and save and wait and save even longer in an expensive area. Clearly£1/2 million is expensive for a first property but op needs to work out how to save. If parents "gift" borrowed money, it's not their money to gift. It's very poor advice.

I gifted my son a deposit for a flat from an inheritance I had received from my father. The solicitor doing the sale needed a written statement from me declaring I had no interest in the property and that the money was a gift not a loan. Very straightforward

Hear hear!
Multi-generational living might work for traditional or primitive cultures where the parents always remain in control of everything, no one is allowed to leave the village etc but they are rarely in line with the demands of modern advanced cultures.
I can't think of anything worse 😱

A generation ago we left home to get married and bought our first home together DwightD. We certainly didn't have 'two starter homes to sell'.

Quite frankly OP earning £120k now hoping her parents can help her out buying a home in London (one of the most expensive cities in the world) has an absolute cheek. Save up your own deposit from your wages.

Why is it an absolute cheek?

tinawe if you can't understand why it's an absolute cheek to be a high earner and expect your parents to help fund you a home in London, then I'm afraid I can't help you. Grow up and stand on your own two feet.

If OPs parents really want to help her to get on the property ladder they should sell their BTL and gift her a large deposit. In my opinion.

That would make very poor financial sense though, the btl will bring in an income stream. There are so many ways to raise money, but selling an income generating asset would be one of the least financially prudent.

There may be ways but this sounds like you all want a bit of a unicorn to be honest.

Your parents have masses of equity they don't want to release.

You have a huge salary but don't want to save or live somewhere you can afford.

It sounds like you'd be better off renting for now. Even with big budgets, compromise is still the key and maybe something you gain insight on when you're older. For now, if you want the lifestyle that you can't afford to buy, renting it may be best.