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    • ichidan
    • By ichidan 26th Sep 17, 5:31 PM
    • 38Posts
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    ichidan
    Gifting/Buying parents' House
    • #1
    • 26th Sep 17, 5:31 PM
    Gifting/Buying parents' House 26th Sep 17 at 5:31 PM
    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.
Page 1
    • getmore4less
    • By getmore4less 26th Sep 17, 6:09 PM
    • 30,008 Posts
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    getmore4less
    • #2
    • 26th Sep 17, 6:09 PM
    • #2
    • 26th Sep 17, 6:09 PM
    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
    • By ichidan 27th Sep 17, 12:29 AM
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    ichidan
    • #3
    • 27th Sep 17, 12:29 AM
    • #3
    • 27th Sep 17, 12:29 AM
    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
    Originally posted by getmore4less
    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.
    Last edited by ichidan; 27-09-2017 at 12:50 AM. Reason: typo
    • ichidan
    • By ichidan 27th Sep 17, 12:49 AM
    • 38 Posts
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    ichidan
    • #4
    • 27th Sep 17, 12:49 AM
    • #4
    • 27th Sep 17, 12:49 AM
    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
    • By getmore4less 27th Sep 17, 2:05 AM
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    getmore4less
    • #5
    • 27th Sep 17, 2:05 AM
    • #5
    • 27th Sep 17, 2:05 AM
    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
    • By Pixie5740 27th Sep 17, 7:01 AM
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    Pixie5740
    • #6
    • 27th Sep 17, 7:01 AM
    • #6
    • 27th Sep 17, 7:01 AM
    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.
    Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.
    • TrickyDicky101
    • By TrickyDicky101 27th Sep 17, 8:27 AM
    • 2,737 Posts
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    TrickyDicky101
    • #7
    • 27th Sep 17, 8:27 AM
    • #7
    • 27th Sep 17, 8:27 AM
    Where are your parents going to live after they've sold /gifted their house to you? Why are they doing this?
    • silvercar
    • By silvercar 27th Sep 17, 9:03 AM
    • 36,087 Posts
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    silvercar
    • #8
    • 27th Sep 17, 9:03 AM
    • #8
    • 27th Sep 17, 9:03 AM
    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
    • By ichidan 8th Oct 17, 11:35 AM
    • 38 Posts
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    ichidan
    • #9
    • 8th Oct 17, 11:35 AM
    • #9
    • 8th Oct 17, 11:35 AM
    so they have no CGT on disposal but what happens next....

    will they stay living there?
    Originally posted by getmore4less
    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.

    you read to read some more SDLT is based on consideration.
    Originally posted by getmore4less
    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?

    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?
    Originally posted by Pixie5740
    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).

    Where are your parents going to live after they've sold /gifted their house to you? Why are they doing this?
    Originally posted by TrickyDicky101
    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. - 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.
    Last edited by ichidan; 08-10-2017 at 11:43 AM. Reason: typo
    • YHM
    • By YHM 8th Oct 17, 11:41 AM
    • 156 Posts
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    YHM
    Sorry to just question one aspect. You are paying your mortgage broker £2700?
    I am a Mortgage Broker.

    You should note that this site doesn't check my status as a Mortgage Broker, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice
    • Keep pedalling
    • By Keep pedalling 8th Oct 17, 12:30 PM
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    Keep pedalling
    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.
    • Pixie5740
    • By Pixie5740 8th Oct 17, 12:39 PM
    • 11,014 Posts
    • 15,188 Thanks
    Pixie5740
    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).
    Originally posted by ichidan
    No need to be such a tosser. I did read your OP and nowhere in the post did you say that your parents were going to be moving out of the property and that you were going to let it.

    What law do you think is being broken by letting a property to your parents?
    Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.
    • ichidan
    • By ichidan 8th Oct 17, 1:07 PM
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    ichidan
    No need to be such a tosser. I did read your OP and nowhere in the post did you say that your parents were going to be moving out of the property and that you were going to let it.
    Originally posted by Pixie5740
    Language please. I'm not here to cause an argument. If you're offended by what I wrote, then I'm sorry, that was not the intention honestly. However, if it makes you feel better, then you can continue insulting me with your sly comments. I'm just here for some advise, I'm not a mortgage expert by any stretch.

    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?
    Originally posted by ichidan
    I figured the only way I could buy a second home with a mortgage would be by getting a buy-to-let (BTL) mortgage, and thus the whole application process would be taken on the basis of me buying the property to let out. If it's possible to get some other kind of mortgage - one based on my own income, then I'd be keen to know more.

    Anyway, moving on.

    What law do you think is being broken by letting a property to your parents?
    I don't know, just my mortgage broker advised me not to do this. It's not a problem anyway, it's something we considered, but it won't happen (I was just replying to getmore4less).
    Last edited by ichidan; 08-10-2017 at 1:28 PM. Reason: typo
    • ichidan
    • By ichidan 8th Oct 17, 1:12 PM
    • 38 Posts
    • 12 Thanks
    ichidan
    Sorry to just question one aspect. You are paying your mortgage broker £2700?
    Originally posted by YHM
    Interesting. Sounds like I'm being ripped off. Ok, I might as well post the exact response from the broker, and you can decide.

    Fees

    Application / valuation £1455.00 – payable now
    Legal fees approx. £1,000 – normally £200 payable up front - balance payable prior to completion
    Stamp Duty - £22,000 (including 3% second property surcharge)
    Lenders fee £4125.00 – deducted from the mortgage advance
    Our fee £2750.00 – payable on the day the mortgage offer is received by you
    There you go. (this is actually based on sale price of £400,000 - but I presume the fees wouldn't be much different if it were £300,000). The property's market value is £500,000 as we had Foxtons value it.
    • ichidan
    • By ichidan 8th Oct 17, 1:26 PM
    • 38 Posts
    • 12 Thanks
    ichidan
    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.
    Originally posted by Keep pedalling
    If they don't give away their asset to me, then they will lose the house, which my dad refuses to do as we've lived there 30+ years. It would be impossible to purchase 2 separate properties for mum and dad to live in without them both moving far away from London. At the end of the day, their intention is for me and my brothers to inherit their property, so we're just accelerating that process, and with 1 year left on their mortgage, we need to be pretty quick.

    They trust that I won't kick them out and make them homeless. For nearly 20 years I've financially supported my parents almost entirely (mortgage+bills etc.) with the help of my brothers too. Makes more sense for me (and my brothers) to own the property and use it as revenue to finance them. My parents (in particular my dad) are not good with money, the whole mess with the mortgage being interest only and not having it paid off already is because my dad remortgage the house 20 years ago to do a business that didn't end well. Their assets are in safer hands if we own it.

    I'm not too sure about equity release. I think my current route will be more economical in the long run, but I'll look into it.
    Last edited by ichidan; 08-10-2017 at 1:33 PM.
    • IAmWales
    • By IAmWales 8th Oct 17, 1:39 PM
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    IAmWales
    Have you considered what might happen if either of your parents have care needs? There is no limit to the number of years the local authority may go back in terms of deprivation of assets, so they may be treated as still having the funds themselves. Are you able to cover any costs, either care at home or residential?
    • getmore4less
    • By getmore4less 8th Oct 17, 1:41 PM
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    getmore4less
    Get a new broker this one saw you coming.


    Are they going to stay living in it or not?
    • ichidan
    • By ichidan 8th Oct 17, 1:49 PM
    • 38 Posts
    • 12 Thanks
    ichidan
    Get a new broker this one saw you coming.
    Originally posted by getmore4less
    My accountant (my uncle) recommended him to me. Although I'm beginning to learn that when friends/relatives offer to do a favour, it's usually you that are doing them a favour. How much should I expect to pay for all this?

    Are they going to stay living in it or not?
    Originally posted by getmore4less
    Nope.
    • glosoli
    • By glosoli 8th Oct 17, 1:55 PM
    • 667 Posts
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    glosoli
    If you're going to be renting the property out to someone else, and effectively because you are inheriting the property, it sounds to me like a consumer buy to let, which will probably reduce the amount of lenders available to you. Or if you allowed your parents to continue living there, and if they paid you rent, it would be a regulated buy to let.
    • ichidan
    • By ichidan 8th Oct 17, 1:57 PM
    • 38 Posts
    • 12 Thanks
    ichidan
    Have you considered what might happen if either of your parents have care needs? There is no limit to the number of years the local authority may go back in terms of deprivation of assets, so they may be treated as still having the funds themselves. Are you able to cover any costs, either care at home or residential?
    Originally posted by IAmWales
    Yes, I should be able to cover the costs. I have a good and steady job, and I'll have income from their property to top it off. Further if the costs were astronomical, then I could always sell the house in the future with even more equity accumulated. I know these are good questions to ask, but my main concern is how I can get the property transferred to me with a good deal on the transaction and mortgage. Everyone involved is in support of this. I will always support my parents.
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