Q I have a complicated mortgage question for you. We are looking to buy my mum’s house (which she owns outright) and build her a granny annexe in the same property.
Our home has a mortgage of about £270,000 on it and is worth about £345,000. My mum’s house is worth about £700,000.
We’re thinking of selling our home, buying my mum’s house, continuing with a mortgage of about £200,000, and using this to build the granny annexe and to carry out other refurbishments on the main house. I’m hoping that this will mean that my mum will remain happy, as she will have a new custom-built home in a familiar location with us close by.
One thing which is worrying me is that I’ve become self-employed over the past two years, and have gone to earning half of what I used to. I’m concerned that my current mortgage supplier won’t want to keep our business, and others will stay well clear of us.
A Your question is confusing rather than complicated. If you sell your house, after clearing your mortgage (which is what you have to do when you sell up) you will be left with in the region of £75,000 in cash. This might be enough to get the work on building work on the granny annexe started (and possibly even completed) but it is nowhere near enough to buy your mother’s house as well. To be able to do that, you would need to raise a mortgage of at least £625,000 (£700,000 minus £75,000). And you might need more than that to be able to finish the building work as well. Given what you say about your earnings from self-employment, I don’t think a mortgage that size is an option for you.
What might be an option for you would be to raise the mortgage you can based on your and your partner’s earnings and use that to buy the house. But for that to work, your mother would have to sell you her property for a lot less than it is worth. I’m not sure that I would recommend that she did that – especially not if you have siblings, who might take a dim view of such an action. Another option would be for your mother to sell you a share of her house and so become joint owners with you but I’m not sure that that would go down any better either.
Unless you can magic up £700,000 out of nowhere, you need to go back to the drawing board to come up with a plan that you can afford to finance. If that involves getting a mortgage, it would be a good idea to use an independent mortgage adviser who can find a firm willing to lend to the self-employed and that will also help fund building work.