Should I take out a second mortgage on my parents’ £2 million house to buy out my sibling? DAVID HOLINGWORTH ANSWERS

My parents are considering remortgaging their house to pay off a sibling who has a stake in the house.

The house is worth between £1.8 and £2 million and was inherited. The sibling does not live in the house but is entitled to around £600,000 of its value.

There has been an agreement between them over the years that my parents will pay the sibling rent for his share of the property until later this year, at which time the sibling will receive the full value for their share of the property.

The problem is that my parents’ income (they are both in their early 60s) is not high enough to avoid an appropriately sized mortgage on the remaining portion of the home – even if the rent payment is higher than the proposed mortgage payment.

My parents were advised by a mortgage broker that releasing equity does not seem to be an option in this case.

That’s why they asked me and my wife to take out the mortgage with them (our income is higher than theirs), but they would pay it in full.

My instincts tell me this is a bad idea for myself as we currently have a mortgage on our own home.

Our mortgage value is £200,000 on a house worth £300,000 and we would probably like to move to a bigger house in the next five years. Is my parents’ plan as stupid as my instincts say? JB

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David Hollingworth replies: The clear preference here is that your parents can get a mortgage that allows them to take full ownership and buy out the sibling, who is presumably part owner.

You should seek legal advice on how to approach the buyout and transfer the assets into your parents’ names, if that is possible.

It will also be important to consider the costs that may be associated with the purchase, not only legal costs but also any liability for stamp duty.

This will help you better understand the total costs of the transaction and therefore the financing that will be required.

Can the parents get a mortgage?

Affordability seems to be the biggest sticking point for your parents, but there may also be factors at play due to their age.

Your parents must be able to demonstrate that they can pay the mortgage now and in the future.

Lenders will take income and expenses into account and although affordability calculations are now more personalized, this is likely to result in a typical figure of around 4.5 times income. Depending on the circumstances, this may be higher or lower.

Age can play a role, because lenders often apply a maximum age limit at the end of the mortgage term.

This often means that the mortgage must be repaid by the age of 75, which limits the maximum mortgage term.

The shorter the available term, the higher the monthly mortgage costs will be and this may also limit the amount that can be borrowed.

However, lenders’ flexibility varies, and a growing number may consider older borrowers, with more and more lenders now capping at 80 or 85 and some imposing no hard limit at all.

That could help allow for a longer term, but if it does mean retirement, the lender will need evidence of expected income in retirement to ensure affordability across the board, not just based on current income.

Interest-only mortgages still require proof of affordability, but do not have a maximum term.

Only interest is paid each month, so the balance is repaid when the property is sold, upon death, or upon moving to long-term care.

> How to remortgage your home: your guide to finding the best deal

Is a joint mortgage a good idea?

Just as many parents are enlisted to promote mortgage affordability for their children, this can also be true for older borrowers trying to meet affordability requirements.

However, you must also show a lender that you can also cover your existing mortgage in addition to the new mortgage.

You are right to ask this question and think carefully about the future consequences of taking over your parents’ mortgage.

It will have an impact on what you may be able to borrow later on, as any lender must look at your total liabilities when deciding what to offer.

Depending on the income and expenses that can limit your options when you move.

You are also liable for the full mortgage payment if your parents cannot afford it.

Releasing the mortgage requires the lender’s permission, which is likely to only happen once the mortgage has been paid off, either through monthly repayments or through sales.

You also need to consider the ownership structure. Being named on a mortgage usually means you own the property.

That would expose you to the 5 percent stamp duty surcharge because you own additional property.

However, a growing number of lenders are allowing you to be a party to the mortgage without being named on the title of the property, thus avoiding any surcharges or capital gains taxes.

As much as you may want to help your parents continue to live in the property, you will all need to carefully consider the impact of the arrangement and independent legal advice may be a worthwhile expense before proceeding.

Some lenders who may be able to help may insist on it for all of these reasons.

Generation H, for example, is particularly focused on these types of scenarios and makes a point of highlighting the pros and cons for someone looking to increase their income this way.