Raising a mortgage to 'buy out' a jointly-owned property

"A rising tide lifts all boats" - a somewhat hackneyed little aphorism but nevertheless, one that has always rung true for me. I think that a smart business owner doesn't run their company as an island, more as part of an eco-system. 

In the property market, this approach is more than a pithy marketing soundbite - it's downright essential. I run a successful sales and lettings agency, but we aren't the only people you'll need to consult and work with if you're buying, selling or renting out property with us.

You'll need mortgage options, reports and surveys, deeds, contracts, credit checks, photography... the list goes on. This why I have built - and continue to build - a solid network of trusted property professionals. 

In my self-appointed (and much-loved) role as Belfast's Property Agony Uncle, I'm increasingly connecting my readers as well as my clients to the professionals in my sacred circle of service providers.

A good example is a reader who got in touch recently to say how much he was enjoying the blog, and asked if he could buy me a cup of coffee and chat about a property conundrum he was facing.

A young man, this would not only be his first step on the property ladder (daunting enough) but it was a slightly complex case and he felt the need for a high level of step-by-step guidance from the experts.

His mother jointly owns a 2-bed terraced property in East Belfast with her 4 siblings. It's on the market at £55,000 and she is willing to give her one-fifth share to this young chap. 

He sees - potentially - a great chance to procure an investment to help secure his future. But he had lots of questions:

• Would he be able to procure a mortgage to 'buy out' his aunts and uncles?
• If so, how should he approach the bank with his idea?
• Should he purchase as an individual or set up a limited company?

It was a great little case to get my teeth into, and I broke it down into three key elements.

 

Legal

Here is a little-known fact about buying and selling property - you should start the conveyancing process as soon as you decide to buy or sell a property.

For the uninitiated, conveyancing is the process of transferring legal ownership of a property from one party to another. We're going to focus on this process in more detail later in the month and throughout the year, so watch this space.

A good solicitor (and I happen to know the best) can start the process right away and save you a couple of weeks if you speak to them at the same time you speak to your mortgage broker.

That brings me neatly on to the second element...

 

Mortgage

My reader asked me how to approach his bank with his mortgage query and I gave him another key piece of advice: don't.

Anyone who needs a mortgage should always go to an independent broker or advisor. The banks are going to push their own products, which may be quite expensive because you're paying for their perception of stability.

An independent mortgage broker has access to the entire market - they are not tied to any lenders - and will look across the whole gamut of providers to get you the best offer, deal, rate. It's a saving that can certainly mount up over the years when you're paying that money back. 

The mortgage broker I recommended continues to work with my reader, and it is my understanding that they have found him a lender happy to accept his 20% stake in this property as a deposit. 

 

Accounting

Because he hoped this would be the first in a portfolio of investment properties, my blog reader wondered if he should set up a limited company in order to purchase the property.

This has become an increasingly popular option in the past 3 years or so because it offers certain tax benefits. However, he would then be subject to a commercial loan, so the mortgage broker didn't like that idea because you would be subject to commercial rates which can be as high as 8, 9, 10% compared to 2, 3% for your first couple of years offer.

With a still-uncertain Brexit round the corner, are those interest rates going to go up? That's another potential danger - and you'd be locked in.

My accounting expert will work with this reader to decide the best option for his personal and financial circumstances. 

 

Regardless of your property query, or what stage you're at in your property journey, the Belfast Property Blog is a one-stop shop for expert advice and guidance.

If your New Year's resolution is to make more money from property this year, to start making an income from property, or simply to get on to the property ladder - drop me a line to info@thebelfastpropertyblog.com or join the conversation over on Facebook, Twitter or Linked In.