Each month we come across clients in various forms that need a mortgage for a dependent relative.
Many of the dependent relative mortgages that we do involve an older parent where their existing mortgage is interest only and they are coming to the end of their mortgage term. Unlike repayment mortgages where the outstanding balance would have been cleared in situations like this the older parent who does not now have enough annual income to take a mortgage in their own name might be forced to sell their home and move in to rented accommodation. Another factor to take into account is the maximum mortgage term many older borrowers even if they still working might only be able to a maximum term of just a few years. In cases like this often a younger son or daughter could potentially use annual incomes either on a sole or joint application to borrower enough to clear off their parents existing residential outstanding mortgage.
Dependent Relative Concessionary Purchase
In situations such as explained above where the parent or dependent relative will remain in the property and continue to live in the property the majority of lenders will not be happy. Even if the person taking the mortgage meets the lenders affordability model the lender could have issues in the future if they are forced to repossess the property. For a property similar to this one, we do have mortgage lenders who accept your mortgage application depending on your loan affordability. Also, note with a concessionary purchase no personal deposit will be required. Instead the parent or relative gifts the equity that is in the property to their son, daughter etc and that us used instead of a personal deposit.
Unlike a buy to let where borrowing is for business purposes and borrowing is based mainly on rental income. A dependent relative mortgage needs to have sufficient income from either the sole or joint borrower. However, typically the applicants are younger than their older parents and the mortgage term can be extended allowing a bigger borrowing capacity. The longer maximum term can increase the maximum loan available. At the time of application other financial burden the applicants have are taken in to account. The monthly payment of their current mortgage, the applicants combined income including, any shift allowance, child dependents will be assessed to work out minimum income requirements.
What relationships qualify for a dependent relative mortgage?
If the deposit is from the applicants own savings rather than a concessionary purchase as described above. Then the relationship could be any relative and a close relationship would not be required. Cousins, uncle, aunties, grand parents, ex partners, civil partners etc could qualify. However if the deposit is not from own sources and the purchase will be concessionary then typically the relationship would need to be close such as mum, dad, daughter son.
Can’t we just get a regulated buy to let for dependent relative?
Instead of a conventional dependent relative mortgage where the maximum loan is not based on rental income you could apply for a regulated buy to let mortgage.
The issue though is that even those these are labelled as a buy to let they are still assessed on income for affordability. The rates for these regulated buy to let mortgages are usually a lot higher than a typical residential mortgage. As annual income will be assessed anyway we normally attempt to get a dependent relative mortgage agreed first as this gives lower mortgage repayments. To work out whether using family buy to let mortgage providers or a mortgage for dependent relatives it is recommended to seek professional advice by using an independent mortgage adviser. An experienced mortgage broker will have up to date knowledge of the market as an area of niche advice borrowing limits will vary massively between lenders.
What other factors are taken in to account?
As well as annual income, existing outstanding mortgage balances or mortgage payments will be factored in to the affordability calculation. There is more to working out what can be borrowed than just looking at individual income and the income multiple applicable. Personal loans, credit card commitments are factored in to the affordability assessment. The affordability figure is then worked out.
The information from credit reference agencies is also factored in to the decision. Bad credit, adverse credit such as CCJs, Defaults, Missed Payments will make getting a mortgage of this type much more difficult to get the mortgage application approved.
Based on our online research, the above content is accurate as per the time of writing. Mortgage lender criteria and policies change regularly, so it is always better to speak to a financial adviser to get the best-updated information. It is to note that the information provided on the website is not tailored advice to every individual reader and does not constitute financial advice. All the financial advisers working with us are fully qualified to provide mortgage advice and work for organisations regulated by financial conduct authority. All the mortgage brokers in our organisation are capable enough to offer the specific advice you need.
Some of the Buy to Let Mortgage Types are not regulated by FCA. Think and research carefully before securing other debts against your property. As the loan may be secured against your it may be repossessed if you don’t pay the monthly payments. Equity released from your property will also be secured against it.