Should I take out a second mortgage on my parents’ house worth £2 million to buy out my brother? DAVID HOLLINGWORTH RESPONDS

My parents are thinking about remortgaging their house to pay a brother who has a stake in the house.

The house is worth between £1.8 million and £2 million and was inherited. The brother 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 for my parents to pay the brother’s rent for his share of the property until the end of this year, where the brother will receive the full value of his share of the property.

The problem is that my parents’ income (they are both in their early sixties) is not high enough to avoid a properly sized mortgage on the remaining portion of the property, even though the rent payment is greater than the proposed mortgage payment.

My parents received advice from a mortgage broker that equity release does not appear to be an option in this case.

As such, 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 that this is a bad idea for me, since we currently have a mortgage on our own house.

Our mortgage is worth £200,000 on a house valued at £300,000 and we would probably look to move to a larger house in the next five years. Is my parents’ plan as stupid as my gut says? J.B.

SCROLL DOWN TO FIND OUT HOW TO ASK DAVID HIS MORTGAGE QUESTION

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

You should seek legal advice on how to approach the purchase and transfer the equity into your parents’ names, if possible.

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

This will help you better understand the total cost of the transaction and, therefore, the debt that will be necessary.

Can parents get a mortgage?

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

There is no way around the need for your parents to be able to demonstrate that they will be able to afford the mortgage now and in the future.

Lenders will consider income and expenses and, although affordability calculations are now more individual, it is likely to result in a typical figure of around 4.5 times income. It may be higher or lower, depending on the circumstances.

Age can play a role, as lenders typically have a maximum age limit at the end of the mortgage term.

This can often require the mortgage to be paid off before age 75 and would therefore limit the maximum term of the mortgage.

The shorter the term available, the higher your monthly mortgage payments will be and that could also limit the amount you can borrow.

However, there is varying flexibility on the part of lenders, and an increasing number may consider older borrowers, with many now applying a maximum of 80 or 85 and some not imposing any hard limit at all.

That could help allow for a longer term, but if that causes the mortgage to be retired, the lender will require evidence of expected income after retirement to satisfy affordability at all times, not just based on current income.

Retirement 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 when moved into a long-term care facility.

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

Hollingworth warns that taking out a mortgage with your parents could limit your options when you move home.

Is a joint mortgage a good idea?

Just as many parents sign up to contribute to mortgage affordability for their children, it may also be true for older borrowers trying to achieve affordability.

However, you will also need to show the lender that you can cover your existing mortgage along with the new mortgage.

You are right to ask the question and think carefully about the future implications if you were to take on your parents’ mortgage.

It will have an impact on what you might be able to borrow in the future, as any lender will need to consider your total commitments when deciding what they can offer.

Depending on income and expenses you could potentially limit your options when you move house.

You would also be responsible for paying the entire mortgage if something caused your parents to be unable to pay it.

Release of the mortgage would require the consent of the lender, so would presumably only occur when the mortgage is paid off, either through monthly payments or through sale.

The ownership structure would also need to be considered. Being named on a mortgage would normally mean owning the property.

That would open you up to the 5 per cent stamp duty surcharge as you own an additional property.

However, an increasing number of lenders will allow you to be a party to the mortgage without having your name on the title of the property, which could avoid any potential capital gains tax liability or surcharge.

As much as you are sure they will want to help your parents remain in the property, everyone will need to carefully consider the impact of the agreement and independent legal advice could be a cost worth paying before proceeding.

Some of the lenders who can help may insist on it for all these reasons.

For example, Generation H is especially focused on this type of scenario and takes pains to highlight the pros and cons of someone increasing their income in this way.