Gifting/Buying parents' House

ichidan · 26 September 2017 at 5:31PM

Was wondering if anyone could advise the best approach for this...

Parent's home valued at £300,000 with a mortgage of £60,000. They want to gift the property to me. I already have a property so this would be a second home. What would be the best way to do this and what costs would be involved?

- How much could I realistically borrow, and what would determine this? As a BTL, I presume mortgage providers would have a max. LTV that I could borrow at? Would my own income or any other loans/mortgages be taken into account?

- Could I avoid paying stamp duty by paying off the remaining £60,000 mortgage thus my parents would be gifting me an unencumbered mortgage? Are there any other tax implications (Would I even need to pay off all of it? Or just enough to have the outstanding mortgage below the £40,000 SDLT threshold, and then selling the property at that)

- Also, not sure if possible, but could I get a loan to pay off the £60,000 outstanding or remortgage my main property, free up some equity to clear this prior to purchasing to avoid a hefty SDLT bill?

Apologies if any of these questions have been asked before.

getmore4less · 26 September 2017 at 6:09PM

gift and paying off their £60k mortgage

SDLT £1,800

There are loads of other potential issues but you need to provide a lot more details

ichidan · 27 September 2017 at 12:29AM

getmore4less wrote: »

gift and paying off their £60k mortgage

SDLT £1,800

There are loads of other potential issues but you need to provide a lot more details

My parents have used the property as their primary residence since getting the mortgage 20+ years ago, so I believe I won't be subject to CGT. The mortgage is due to end in a year, and is currently interest only - so I have roughly a year to sort this out (I think may be possible to extend the mortgage - the lenders are Kensington Mortgages).

As I already have a property, this would be treated as a second property. As I understand it, from the mortgage broker I've spoken to I'll be liable to pay the higher surcharge stamp duty i.e 3% of the property value. So that's why I'm asking about if it's possible to avoid the stamp duty. It seems that clearing the mortgage and gifting would save roughly £15,000? As well as saving legal fees I think.

If I have to pay the stamp duty, then its not the end of the world, if I can borrow more. The mortgage broker I'm currently using has found an offer from Vida Homeloans, but I can only borrow 112k (37.5 LTV). I thought that Seemed quite low. I figured I'd be able to borrow up to 75% LTV. As rental income is pretty good for this area.

ichidan · 27 September 2017 at 12:49AM

I see your SDLT calculation is based on the £60,000 outstanding on the mortgage. This is a key point I've been trying to wrap my head around. I've read a lot of articles on the internet about stamp duty, and was under the impression that SDLT is paid on the entire market value of the property rather than the sale price. Which admittedly, to me seems wrong/unfair (those who can afford to own an unencumbered property can keep passing it on without hefty SDLT fees each time, while those who still have mortgage, even if just £1, have to pay the whole SDLT on the property market value).

What you're saying though makes sense, I'll have to chase this up with the broker. There may be a reason why I can't purchase the property below market value?

I presume if I wanted to borrow lets say an additional £40,000 (bringing the new mortgage to £100,000). I would purchase the property at £100,000, paying £3,000 SDLT? And end up with £40,000 in my bank account (or my parents bank account) to spend on any property renovations, legal & stamp duty fees? Is that how it works?

getmore4less · 27 September 2017 at 2:05AM

so they have no CGT on disposal but what happens next....

will they stay living there?

I've read a lot of articles on the internet about stamp duty, and was under the impression that SDLT is paid on the entire market value of the property rather than the sale price

you read to read some more SDLT is based on consideration.

Pixie5740 · 27 September 2017 at 7:01AM

What has rental income in the area got to do with the price of fish? Will you be letting the property once you've purchased it?

I don't know where you've picked up that SDLT is paid on the whole market value, it's not it's based on the consideration i.e. the amount you pay.

TrickyDicky101 · 27 September 2017 at 8:27AM

Where are your parents going to live after they've sold /gifted their house to you? Why are they doing this?

silvercar · 27 September 2017 at 9:03AM

For the future CGT liability, you need to get it valued when you buy. Any future CGT you are liable for will be on the gain you make. Given that you and your parents are related parties, the starting point is the market value rather than what you actually paid.

ichidan · 8 October 2017 at 11:35AM

getmore4less wrote: »

so they have no CGT on disposal but what happens next....

will they stay living there?

They will not stay living there. I believe it's illegal to have a mortgage and let to your parents (although I hear some people do it and get away with it). I will use some of the equity in the property to buy a small home for one parent, while the other parent will stay with us in our home. I'll rent the property out. As at present having 2 people living in a 3 bedroom house doesn't utilise the full income potential of the property. - I've been paying my parent's mortgage for many years now.

getmore4less wrote: »

you read to read some more SDLT is based on consideration.

Ok my mortgage broker says that "stamp duty is arrived at by the actual value of the property because we are purchasing it with a gifted deposit.". Not entirely sure what this means 'gifted deposit', or what the advantages of doing this instead of just gifting the property with the existing 60k outstanding to pay, and then I get mortgage for this 60k + some more to buy an additional property/renovations?

Pixie5740 wrote: »

What has rental income in the area got to do with the price of fish? Will you be letting the property once you've purchased it?

Yes, re-read the original post. I already have a property, and I'm pretty sure I need a BTL mortgage. I assumed that in order to get a BTL, you had to show (or they would check) that the rental income in the area for this type of property is >125% of the interest repayments. Anyway, I have sufficient income from my business that I'd be able to cover repayments if the property were empty (I presume my own income is factored in as the broker required information from my accountant).

TrickyDicky101 wrote: »

Where are your parents going to live after they've sold /gifted their house to you? Why are they doing this?

My parents are in their 60s, retired, they've never been particularly good with money, as a result they've been on an interest-only mortgage from Kensington Mortgages for 10-20 years. Despite the insanely low LTV (<20%), their interest rate is around 5%, and now with just 1 year left on their mortgage, we're faced with 60,000 outstanding on the mortgage or they'll lose the house.

Anyway, as I enquired about how much I could borrow on the property. My broker came back and has now said that Vida Homeloans have agreed to a higher maximum mortgage (now around 55% instead of the previous 37.5%). So clearly the previous maximum wasn't really a maximum, just some arbitrary value. If I complain a few more times, I'll probably be able to uncover an even higher maximum amount. :rotfl: - Anyone have an idea of what the real maximum amount I should be able to borrow, just out of curiosity (the new 55% that I can borrow is very workable now).

So the final concern I have is all the fees, which seem a bit high, but maybe they're in line with this sort of purchase...

So there is:

Application/Valuation: £1400
Legal fees: £1000
Stamp duty (dependent on consideration paid - as has been mentioned in this forum)
Lenders fee: £4000
Brokers fee: £2700

Seems a bit steep. Could I just go to Halifax, RBS or some other bank and avoid of these fees. - I wrote a post on these forums a couple years ago when I was buying my first property where the Mortgage Broker (different one) incorrectly said I could borrow only 4.5x my income (they were using this limit, even though it was not Help to Buy - they just said it was pure coincidence based on my income/affordability criteria), eventually I just went direct to Halifax and was able to borrow 5x my income and everything went through fine. So you can forgive me for being a little suspicious of using mortgage brokers.

YHM · 8 October 2017 at 11:41AM

Sorry to just question one aspect. You are paying your mortgage broker £2700?

Keep_pedalling · 8 October 2017 at 12:30PM

it sounds like your parents have very little in the way of any other assets, so they would be very foolish to give away their only asset. Downsizing or equity release would be a better option for them, and they certainly should not go ahead with this without taking independent financial advice.

Gifting/Buying parents' House

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