Thinking Of Buying A Second Property?

The dramatic increase in the cost of properties in the past decade has placed house buying out of the reach of significant sections of society. 

Young adults with no capital, low wages and uncertain financial futures stand next to no chance of accessing finance from a bank, but neither do older people with a low level of savings. 

Many older people who have rented all their lives or have been council house tenants, find the cost of renting in retirement too high. 

The retirees who have owned properties all their lives and who have paid off their mortgages, generally get to enjoy a far better standard of living, than those who have not if they have not budgeted for their accommodation. 

Some children of retirees who are finding their retirement a struggle have, in recent years, come up with new and innovative financial strategies to help their parents. 

If your parents have existed on a low income for much of their lives and they lack the money to put down a deposit on a property (normally 25 percent of the property’s value), banks will be less than enthusiastic to lend to them. 

One of the more popular strategies for getting round this is to purchase a second property for retired parents (or any dependent for that matter). Funding a second property and buying a home for a family member can be a great investment and can help to relieve financial pressure for your loved ones. 

How to get a second mortgage

 If you decide to go down this route, you must be at pains to point out to a potential lender that your parents are not your tenants. 

You need to give the bank clear and precise information that distinguishes you from a buy-to-let property owner. 

Simply keeping the bank informed about you and your parents needs will prevent you from winding up with a much more expensive mortgage product. 

It is important not to be (wrongly) classed as a buy-to-let landlord and only offered specific (and expensive) buy to let mortgage packages. 

The banks, in principal, are more than happy to lend you the funds to buy another person a house to live in, without you also having to live on site, as long as it is not a formal tenancy situation. 

You might find that with the spiralling costs of university tuition and accommodation, that it makes sense to buy a property for your son or daughter while they are studying. 

Again, you need to establish with your bank that you are buying for a relative or dependent and not establishing a formal tenancy agreement as a landlord. 

Equity 

You can access a standard mortgage for another person and agree to take on the responsibility for repayment of the loan, or you can access the equity in your own property. 

In the first scenario, the second home is at risk, but in the second scenario, your home is, and the equity that you have built up over the years will be spent. 

This means that you need to be careful with such decisions and where possible, access some expert and impartial advice. 

You might find that the type of deal you need is not available through your high street lender and consulting an independent advisor could help you access different mortgage products that suit your needs. 

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

For more information please do not hesitate to contact the team at Ward Williams Financial Services Ltd on 01932 830664 or by email on wwfs@wardwilliams.co.uk.