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Gifted property - want to use it to get a mortgage on a larger property. What are my options?


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My partner had a £80k property bought out right for him in his name. We are both earning decent enough money in order to have a mortgage of around £250k however, have very little savings for a deposit. We have £0 dept. I understand this is a fortunate position to be in but would like to make more of the position we’re in - I just do not understand how best to do it. 

1. Could I qualify for “first time buyer” if his name is on said potential new mortgage? 

2. Without selling the £80k property but renting it out (1 bed flat) - Could the current property equity be used for deposit? If so how? We are too young for equity release I believe? 

3. Is it a foolish time to be thinking about buying with the current epidemic or will house prices falling be favourable for buying and not selling?

4. I’ve had a “rent to buy” mortgage suggested to us but it seems rather complicated - is this worth it? What if the tenants don’t pay the rent?

4. What would you advise in my position? 
 

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Hi there,

Let me try to answer your questions:

1. You are a first time buyer if you haven't owned a property in the past. Your partner has (well, does), so he's not a first time buyer. As such, there are a few consequences:

- you buy a property and he's on the mortgage - some lenders may still give you a first time buyer deal, because all they need is one of the applicants to be a first time buyer

- you buy a property and he's on the mortgage, but not the deed (it's possible, but it means that he won't become an owner) - you could benefit from the first time buyer stamp duty relief (your solicitor will give official advice in relation to the stamp duty aspect)

- you buy a property and he's on the mortgage and the deed - because he'll own two properties, you'll pay a higher rate stamp duty, not even the normal rate (again, the solicitor will give official advice)

- if you were to sell the £80k flat and your partner will be on the title deed (i.e. a co-owner) of the new property, you'll just pay the normal rate stamp duty, not the higher rate, as he'll have only one property, but because he's not a first time buyer, you won't get the first time buyer stamp duty relief (again, solicitor...)

2. The term equity release is a bit misleading - no, you'll likely not qualify for an "equity release" mortgage, but yes, you can release equity from the property. "Equity release" in general just means that you take a mortgage on a property to free up cash, which you can do at any age. It's just the type of mortgage that will depend on your age.

Basically, in your case, if you rent out the flat, you could take a buy to let mortgage (you called it "rent to buy", which is something completely different and not applicable in your case) and release up to 60-75% of the property value to use it as deposit for the new property.

3. Everyone has a different view of buying in the current climate. A lot of lenders have stopped lending altogether, while others have restricted their lending for new purchases to 60-75%. But you'll also face the issue of viewing properties and that you're unlikely to get a survey done on it anytime soon...

In a previous post, I recommended to someone that they wait, so someone replied saying that he was speaking to another broker to see, if they recommend something else...in other words, it's down to you :)

4. "Rent to buy mortgage" is called "Buy to let" and yes, it is complicated. If the tenants don't pay the rent, you still have to pay the mortgage. You could mitigate this risk by taking out landlord insurance with rent guarantee or engaging a letting agent who offers rent guarantee, etc.

Whether it's worth it... well, people invest their money in different ways. Landlords believe that investing in property is worth it even when taking into account the mortgage, the risk of the tenant not paying, etc. Of course, you have to take stock, check how much rent you could get, how much the mortgage would cost, the letting agent, maintenance, service charge and ground rent for the flat, insurance, your time, accountant, tax, etc. and then make a decision, whether it's worth it.

5. We can't really give you advice about what to do, because we'll never know the full picture, your and your partner's personality, risk appetite, etc.

Put it this way, if you'd like a simple life, then sell the property (probably not now, as viewings and valuations are rather tricky) and use the sale proceeds to buy a new home for yourself.

If you're a bit more adventurous, then you could rent out the flat while waiting for things to change and get some experience of being a landlord without the complication of having a mortgage. (To note, your chances of a tenant not paying are quite high right now, as the government announced that no tenant can be kicked out for non-payment due to the coronavirus situation, so do some research first...)

But if you want to make the most of this gifted property, then yes, you could take out a buy to let mortgage, rent the flat, use the money as deposit and buy a new property for yourselves. 

I hope the above helps and sorry about being perhaps a bit long winded...

 

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