Borrow From Parents Or Mortgage?

[Zeemax_Mini]

Quick question...

I'm 24 and have been working in my current job for just under a month (£20k/year + £500/month bonus guaranteed).

I own a flat, which I'm selling for £265k (making a nice profit) and I intend on buying another project property to do up and resell within around a year (and then again and again moving up the ladder hopefully). I have £120k of my own cash in the flat, and £140k borrowed from my Dad on which I pay him the interest that he would have got if the money had been in an Investec High 5 account (around 3.2% at the moment). My question is, am I better of keeping this arrangement or switching over to a mortgage (thats if I could even get one)? It seems at the moment that mortgage rates are lower than savings rates (so I'm worse off) but is this normally the case? Also I guess product fees/repayment fees/surveys etc might wipe out any savings anyway?

Cheers!

Dom

[scotal]

Zeemax_Mini said:

(£20k/year + £500/month bonus guaranteed).

Zeemax_Mini said:

£140k borrowed from my Dad

140k/26k = 5.3 x income. Stick with your dad.

[Zeemax_Mini]

Only other thing I'd forgot to mention is that I may well spend less on my next place, but it would still be a minimum of £120k to borrow. Guess you're probably right though - I'd be unlikely to be offered a mortgage for that even with a hefty deposit?

Cheers,

Dom

[scotal]

You'd get £120k, but there would be fees, & most likely tie-ins.

3.2% isn't a bad rate, granted its not the best, but I'm sure bank of dad is better than getting through the underwriting at the lenders.

How sure are you on the property you're buying? If you are comfortable you are not buying a lemon, and the legal work is done properly I don't see why a mortgage would be more use than your dad.

What happens with your old man when the interest rate rises?

[Zeemax_Mini]

scotal said:

You'd get £120k, but there would be fees, & most likely tie-ins.

3.2% isn't a bad rate, granted its not the best, but I'm sure bank of dad is better than getting through the underwriting at the lenders.

How sure are you on the property you're buying? If you are comfortable you are not buying a lemon, and the legal work is done properly I don't see why a mortgage would be more use than your dad.

What happens with your old man when the interest rate rises?

Well thats the great thing about the BOD - the property I bought and any intend to buy are likely to need quite a lot of work and it is handy not relying on mortgage surveyors etc to give them the OK. Are savings rates likely to always be higher than mortgage rates?

Dom

[matsmith]

Ignoring the finer points of the interest rate and costs, in your position my main consideration would be how well off is your Dad? If he has a spare million, or indeed a few hundred thousand still sitting in the bank, then stick with borrowing from him. If on the other hand that majority of his cash has been lent to you, then use this as an opportunity to pay him back. Or pay him back half and borrow the remainder etc.

[scotal]

matsmith said:

Or pay him back half and borrow the remainder etc.

That could give you a bit of a problem with the mortgage lenders.
They may make it a condition o fthe offer that any deposit coming from dad was a gift with no expectation of it being retunred, and dad may need to sign to that.

[Zeemax_Mini]

matsmith said:

Ignoring the finer points of the interest rate and costs, in your position my main consideration would be how well off is your Dad? If he has a spare million, or indeed a few hundred thousand still sitting in the bank, then stick with borrowing from him. If on the other hand that majority of his cash has been lent to you, then use this as an opportunity to pay him back. Or pay him back half and borrow the remainder etc.

I'm in the lucky position that I don't need to worry about paying him back any time soon, that side of things wouldn't make a difference. My main (selfish!) concern is whether short or long term I'd be better off with my current arrangement (paying investec rate of interest) or looking to switch onto a mortgage.

Cheers,

Dom

[louiebaby]

Being a cash buyer puts you in a stronger position I would have thought. You'll be able to get the good stuff from auctions, or go in lower on a property knowing you're cash rich.

If you're planning on churning through properties at a reasonable rate, you might want to look into the tax implications. I know you don't pay capital gains on your primary residence, but if you're moving that regularly, you might find it tricky to explain if you get investigated.

The benefits of freedom you get with BOD outweigh the potential costs of doing it that way. You lucky duck.

[scotal]

louiebaby said:

The benefits of freedom you get with BOD outweigh the potential costs of doing it that way.

I tend to agree with this.

Maybe in the future you can switch to a mortgage but for what you are doing, and what little you've told us so far i'd stick with BOD.

[Zeemax_Mini]

Cheers guys, pretty much as I thought but just wanted to check! I am indeed a lucky duck - both myself and my brothers inherited a lump which has been matched (as a loan at investec interest) by Dad to enable us to buy places. I'm wanting to pay the loan off ASAP and become completely loan free, hence I've just done my first place up and accepted an offer and I'm now looking to continue this! The whole cash buyer thing does also help - as you say, auctions are much easier and I can also move faster than other buyers.

Thanks for the advice.

Dom