Looking for a bit of advice/confirmation of my thoughts on the following situation. I am not in any rush to buy a house but pressure coming on from all parties (OH, my father, her father, sister in law - “missed the boat” is a favourite quote at the moment).
I am currently engaged (no kids), wife to be (for last 3years or so) and my father (last 6 months) pushing at buying a house. Situation as it currently stands is:
I am newly qualified accountant, €50K p/a. O/H is doing postgrad and is being fully paid while doing so but had to give up her permanent position. Savings of €75K between us. If we went for mortgate approval I would expect somewhere is the €150k to €175k range (3-3.5x my salary and OH salary discounted). When I do eventually buy, which I think will be late 2015 I would be thinking of a house around €350k at current prices.
My Fathers proposal:
Buy the house now. Funded by €75k deposit, €175k mortgage, €100k loan from him (with no claim on the house as I know this is a requirement from the bank).
When my OH finishes her postgrad and gets permanent job (which will not be an issue) that we remortgage the house and repay the €100k to him in approx 2 years time.
This would mean remortgaging from a LTV between 50% up to 75% approx after small amount of capital repaid in first 2 years. Would a bank be willing to entertain this idea? I would have thought that they would not, why would they take an additional risk on a A+ loan already on the books.
That is my point to him. That I don’t believe that a bank would remortgage it for us. It was a brief conversation with him and he was just spitballing. I know that (if circumstances don’t significantly change) that he would not need the money back in 2-3 years, however, I would be disguisted with myself if it came to pass that in 3 years that the banks would not be in great shape and possibly not remortgage and leave me with this outstanding debt.
It seems like a no-brainer for me to take the cash as I wouldn’t be paying interest on it, and could either then pay down the mortgage balance quicker, or more likely, save some cash over the couple of years which would mean a smaller remortgage necessary to pay him back.
It sounds like you have time to wait and see. In a few years interest rates might be higher which would put those with a large deposit in a good position, there’ll be new builds and the emigration of under 30s might be felt. There will always be more recessions, that’s guaranteed.
Of course, credit could loosen and prices could go considerably higher before any of that.
Your partner and you will have to make your own minds up though. Family advice on financial matters - tread very carefully.
My recent understanding of re-mortgage policy is that you can only seek a re-mortgage for the purposes of investing in something that will increase the value of the property it is secured against (which is corroborated by valuations, architect certs etc), a far cry from the days they were used for debt consolidation, car purchases, holidays and so on. I dealt with a request where a father insisted his son be given a re-mortgage to repay him for the sum of money he lent him to buy his home several years ago so the father could gift it to his other son. The father was literally shaking with rage when I told him this wouldn’t be considered. Policies could relax, but at present you couldn’t obtain a mortgage on this basis.
There’s no hurry - rent, continue to save and watch what happens - if experience shows us anything, it’s that prices don’t keep on rising forever - especially when mortgage lending is aprox. 5% of peak levels.
That said, free money is tempting… Is he really looking it back though? Once he signs that declaration for the bank, he’s relying on your honour!!
If the house is in Dublin and your dad agrees you could ask him in the event you can’t re-mortgage if you could pay him back as if he was the bank over an agreed time frame (depending on his age). There is the (small I’m sure) risk you and your dad could fall out in that period and he’d be screwed. There is also the risk you could get divorced and some of your dad’s money gets lost. There’s also the risk you could start a family and your ability to repay him suffers. Then there’s the risk that one of you gets sick and again your ability to repay suffers. So it’s a very risky prospect for your dad to loan you money in this way and he really should think through what could happen. Having said that, if he’s desperate for you to buy now and is aware of the risks I’d be inclined to take the offer of money to buy a house (in Dublin) now. You’re very lucky to have a great dad so willing to help even if you don’t take his loan.
Yes he would be really looking for it back and I wouldnt take this amount off anyone. More than happy to keep renting and pay for the weddings and then keep saving for another 18 months before looking at buying again when we have two permanent jobs in the household.
Yes very lucky that he is willing to offer his help like this. I nearly just wanted reassurance (and an excuse other than my opinion over why this wouldn’t work. We end up the same conversations/arguments that we have constantly over buying or renting).
I would be very hesitant to take the money off him even if it was possible to remortgage (which its seems it wouldn’t be) so there is absolutely no chance that I would take it and pay back over extended period of time etc.