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  • FIRST POST
    • 56cheffy
    • By 56cheffy 5th Jan 08, 8:41 AM
    • 445Posts
    • 140Thanks
    56cheffy
    Buying my parents house UNDER market value.
    • #1
    • 5th Jan 08, 8:41 AM
    Buying my parents house UNDER market value. 5th Jan 08 at 8:41 AM
    My parents need the cash, don't want to move, the house is valued at 350000, the most I can afford is 250000.....

    What are the comebacks on this if I buy at a greatly reduced price?
Page 1
  • Mutton Geoff
    • #2
    • 5th Jan 08, 8:45 AM
    • #2
    • 5th Jan 08, 8:45 AM
    Interest from the HMRC regarding their shortage of stamp duty?

    Eventual falling out with parents over low price paid?

    How about a % shared ownership arrangement instead? Also make sure your valuation is accurate in the current market. 3 agents "valued" my flat at 250k but after 6 months on the market, the best offer I could get was 200k.
  • abaxas
    • #3
    • 5th Jan 08, 9:37 AM
    • #3
    • 5th Jan 08, 9:37 AM
    There is no such thing as 'Under market value'.

    The market defines something's value once the transaction is completed, everthing before then is mearly a valuation.
    • 56cheffy
    • By 56cheffy 5th Jan 08, 10:55 AM
    • 445 Posts
    • 140 Thanks
    56cheffy
    • #4
    • 5th Jan 08, 10:55 AM
    • #4
    • 5th Jan 08, 10:55 AM

    Not sure how you can buy parents' house when they don't want to move! We only sold at below market value because we DID want to move and that was what they could afford.

    Margaret
    Originally posted by margaretclare
    They will continue to live there and pay a 'reasonable' amount of rent.
  • takoo
    • #5
    • 5th Jan 08, 10:57 AM
    • #5
    • 5th Jan 08, 10:57 AM
    Hi 56nCheffy

    Other points to consider:

    1 Would equity release under a safe SHIP scheme suit your parents circumstance?

    2 If your parents need care home support in the near or distant futures will they be able to afford it and would you be in a position to help out?

    3 Years ago my wife and I and my parents sold our houses and bought a larger one to live in with our young children. Could this be a viable proposition for you and yours?

    All the best to you all in 2008

    Takoo
    • 56cheffy
    • By 56cheffy 5th Jan 08, 10:57 AM
    • 445 Posts
    • 140 Thanks
    56cheffy
    • #6
    • 5th Jan 08, 10:57 AM
    • #6
    • 5th Jan 08, 10:57 AM
    Interest from the HMRC regarding their shortage of stamp duty?

    Eventual falling out with parents over low price paid?

    How about a % shared ownership arrangement instead? Also make sure your valuation is accurate in the current market. 3 agents "valued" my flat at £250k but after 6 months on the market, the best offer I could get was £200k.
    Originally posted by Mutton Geoff

    If I paid over the £250000 stamp duty threshold might that be OK?
    Last edited by 56cheffy; 05-01-2008 at 11:05 AM.
    • 56cheffy
    • By 56cheffy 5th Jan 08, 11:04 AM
    • 445 Posts
    • 140 Thanks
    56cheffy
    • #7
    • 5th Jan 08, 11:04 AM
    • #7
    • 5th Jan 08, 11:04 AM
    They are wanting to have some cash themselves and divvy some out to the 3 children and grandchildren who can make more use of it now rather than in xxx amount of years.

    The idea is to sell to me for £250000, give £50000 each to the children and keep £100000 for themselves which would go towards rent, this rent would hopefully pay MY mortgage on the house.

    I believe that you cannot let parents live rent free in a property and that they have to pay a market rate. Is that correct?

    BTW...my brother and sister are in agreement with the price that I am willing/able to pay.
    Last edited by 56cheffy; 05-01-2008 at 11:06 AM.
    • Biggles
    • By Biggles 5th Jan 08, 11:17 AM
    • 6,651 Posts
    • 4,105 Thanks
    Biggles
    • #8
    • 5th Jan 08, 11:17 AM
    • #8
    • 5th Jan 08, 11:17 AM
    I'd be inclined towards Mutton's original suggestion.

    Buy (say) 2/3rds of the house, you pay your mortgage, parents continue to own the other 1/3rd and pay you 2/3rds of the full rent.

    Brother & sister may not be objecting now, but a few years down the line they may realise how much out of pocket they are over the arrangement. And I wouldn't blame them, they'd effectively be making you a present of 100,000 plus the increase in the house value to the time your parents die. Why would they be happy with that?

    And this way, there'd probably be a lot less CGT for you when the house is sold.
    • Andy L
    • By Andy L 5th Jan 08, 11:49 AM
    • 7,648 Posts
    • 5,722 Thanks
    Andy L
    • #9
    • 5th Jan 08, 11:49 AM
    • #9
    • 5th Jan 08, 11:49 AM
    If they die wihin 7 years the amount under market value will be liable for IHT
  • hopeless case
    Gosh work it out the house is only valued at 350000 no one says they will get that they may have it in the market for years and then get no where near that. Also this means if he buys it they can stay there. If sold to someone else they could not. All the kids could chip in to buy if they wanted ,does not sound as if they will though does it. Go for it if you can i cannot see any reason for you not to be able to buy it cheaply but could you afford it if your parents coud not afford the rent? just something to consider?Good luck!
  • btloptingout
    FWIW I think buying ones parents place and letting it back to them is a good idea and intend to do the same myself, for no other reason than to let them have a life to enjoy their money.

    But do your figures add up?

    Using very rudementary calculations:
    - A market rent for this house would be of the order of 1300 pcm.
    - To cover your 250K mortgage you'll need around 1200 pcm on an IO basis.
    - The 100K your parents retain would give an index linked return of around 250 pcm.
    - Drawing down on the 100K (+growth) to cover rent would mean the 100K pot would be fully exhausted in year 8.

    Apart from the figures you also need to consider the consequences of falling out with parents/siblings if perception further down the line is that you have done/better worse out of the original deal.

    Personaly I wouldn't touch the deal as it currently stands
  • btloptingout
    The following deal might work:

    - Sell house to three siblings at 83K each (3 * 83 = 250K)
    - Each sibling has an IO motgage of 415 pcm
    - Parents have pot of 250K that can just about cover your 3 mortgages.
    - Erosion of capital will be at a rate that will not be exhausted in their lifetime, you will still have some left as an inheritence for the 3 of you.
    • Riq
    • By Riq 5th Jan 08, 3:58 PM
    • 9,713 Posts
    • 8,219 Thanks
    Riq
    They will continue to live there and pay a 'reasonable' amount of rent.
    Originally posted by 56cheffy
    You are paying them 100k less than the house is worth AND they are going to pay reasonable rent??!!!

    Can I get in on this deal?!
    "I'm not from around here, I have my own customs"
    For confirmation: No, I'm not a 40 year old woman, I'm a 26 year old bloke!
  • SquatNow
    A few points of note:

    The OP is proposing to buy the house AT THE PEAK OF A PROPERTY BUBBLE.

    A 30% drop in prices (the amount now being predicted by some of the big estate agents!) would leave the OP in negative equity.

    The 350k market value is just a number. the only way to find the true market value would be to sell the place. If put on the arketnow itmight only sell for 250k, in which case the OP is paying full market value.

    Even if the price it really would sell for was 250k, if the place i valuedat 350k and the parents die within 7 years, HMRC would want IHT on the 100k "difference" that never eally existed.

    In a best case scenario, if prices didn't drop, when the OPs parents die his siblings ould probably sue him for the "missg" 100k.

    I can't see how this can turn out well.

    Best just to get his parents to sell the house and rent a smaller place.
    Bankruptcy isn't the worst that can happen to you. The worst that can happen is your forced to live the rest of your life in abject poverty trying to repay the debts.
  • DrFluffy
    Both parties (you and your 'rants) need to get separate independent legal advice, and a licence drawn up giving them permission to remain until an agreed point (usually their death or decision to move to a nursing home).
  • Ems!
    There are IHT implications with what you are suggesting ( look up " gift with reservation " rules). These can me mitigated if patents pay you open market value. The kind of thing you are suggested is not uncommon with wealthy families - the children get the house, and the value of it is removed from parent's eventual estate providing that they are paying rent at fair market value. This gets further amounts of money into your hands without HMRC having a slice. Sounds like it might not be entirely appropriate of your parents are short of cash though - some of the above ideas are good. Defo get legal advice from someone who knows abt IHT rules.
    • Generali
    • By Generali 5th Jan 08, 6:46 PM
    • 35,643 Posts
    • 143,057 Thanks
    Generali
    It sounds like a reasonable deal all ways around. Your parents get the cash that they want and get to stay in their home (without having to go to one of those shyster companies). You get to buy the house at a better price.

    Stamp duty will be payable on the market value of the property (link to HMRC) not what you pay so paying just below the threshold won't necessarily help. Of course you can always argue the toss with them that the house is really worth 249,999.99 not 350k - eventually the courts can decide if you want them to.

    Where the consideration for a land transaction is satisfied by the transfer of an asset, the market value of that asset will be the price which that asset might reasonably be expected to fetch on a sale in the open market.
    As above there's the IHT thing too.
  • bluejake
    My parents need the cash, don't want to move, the house is valued at 350000, the most I can afford is 250000.....

    What are the comebacks on this if I buy at a greatly reduced price?
    Originally posted by 56cheffy
    Your parents are short of cash. So you want to rip off 100k from them and then charge them rent as well! You sound like a wonderful son...I think your parents should get some advice independent of you e.g a solicitor or the C.A.B.

    What happens to your parents if you cannot meet the mortgage payments or get divorced etc etc. As far as I can see your parents lose an enormous sum of money and their security whilst you are quids in.
  • btloptingout
    Your parents are short of cash. So you want to rip off 100k from them and then charge them rent as well! You sound like a wonderful son...I think your parents should get some advice independent of you e.g a solicitor or the C.A.B.

    What happens to your parents if you cannot meet the mortgage payments or get divorced etc etc. As far as I can see your parents lose an enormous sum of money and their security whilst you are quids in.
    Originally posted by bluejake
    want to rip off 100k....an enormous sum of money and their security whilst you are quids in

    Is this a wind-up?
    He's their son!!!....They have probably suggested this deal.

    If they went to a company offering a similar service they would be worse off and have zero security.
  • dolce vita
    Regardless of the ins and outs of whether this is a good or bad deal, it really is a terrible state of affairs that people even need to think about something like this just to provide a bit of financial security for themselves or their parents.
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