Buying a house of my parents for under market value

ktandpete

Hi all,

I had a quick scoot around the forum, but couldn't find anything that answered my question in full, so thought I'd post myself.

In 2005 my husband and I owned a terraced house with no equity in it. My husband lost his job and was forced to go bankrupt. We were advised to sell our house before he went bankrupt and my parents bought a house with a buy-to-let mortgage for us to live in. As it is buy-to-let, it is interest only and we pay all of the interest. They also took a mortgage out on their own house (again interest only) which they used as a deposit on my house.

My parents are very supportive and have only ever wanted to help us, and so agreed that any equity in the property would always be ours. We agreed to pay for all maintenence and insurances on the property and always have done, so they have never been out of pocket.

We are now feeling in a much better position financially (albeit with a bankruptcy against my husbands name) and would like to own the house for ourselves.

I have detailed the numbers below FYI, can my parents sell me the house for the amount owed against my house only (and not theirs) so that I can get a 65% LTV mortgage (I don't to find a cash deposit then)? We would then get a re-payment mortgage (so that we start to pay off the capital) and make additional payments on the loan against their house (until we eventually pay it off).

My house - buy to let mortgage (in parents name) £105,413.00
Their house - mortgage (in parents name) of £83,974.15 used as deposit on my house
Current value of my house - £170,000 (from Zoopla)

I hope this is enough info to enable someone to offer advice, please let me know if you need anything else

Thanks for reading

p00hsticks

ktandpete wrote: »

My parents are very supportive and have only ever wanted to help us, and so agreed that any equity in the property would always be ours. We agreed to pay for all maintenence and insurances on the property and always have done, so they have never been out of pocket.

My house - buy to let mortgage (in parents name) £105,413.00
Their house - mortgage (in parents name) of £83,974.15 used as deposit on my house
Current value of my house - £170,000 (from Zoopla)

I don't quite understand what you are saying here. You say your parents took out two mortgages in order to buy the property you are living in - one secured on that property, and one secured on their own property to provide the deposit. Together, those two mortgages add up to just under £190,000.

But you say that the current market value of the house is only £170,000. So how are you proposing to buy the house at less than the market value without your parents being seriously out of pocket ?

Are you currently paying for both mortgages or just the one secured against the property you are living in. Are your parents happy to be left with an £84,000 mortgage against their own property after selling you the other one ? Have you and they considered how they are going to pay the capital sum of this off when necessary ?

ktandpete

Hi P00hsticks,

Thanks for your reply.

We pay the interest on both mortgages. If we are able to buy the house and clear the mortgage against our house, we will then either continue to pay the interest on the mortgage on my parents house or even start to pay it off (depending on how much money is left at the end of each month!). My parents are quite happy with this as even if we don't pay off the mortgage against their house, it's my inheritence anyway!!! I would never leave them out of pocket as they have enabled us to have a roof over our heads.

They are however concerned about 'something happening to them' while the mortgage on my house is in their name, which is another reason we want to sort this out.

Incidentally, I have life insurance that would cover both mortgages should anything happen to my husband and/or I.

Hope this clarifies a bit, look forward to hearing your further thoughts

Pee

If your parents sell with they have to pay CGT. I.e. has the property gone up in value since? I'm not sure because of all the mortgages, so maybe there wouldn't be, but I would suggest speaking to an accountant.

If it is an undervalue, which it doesn't sound like it is, then if they went into care this could cause a problem, but I think it is unlikely in the circumstances.

ktandpete

Hi Pee,

Thanks for your reply.

We bought the house for £179,000 in 2005 and it is worth £170,000 so I don;t think CGT would apply (but I am not well up on this, so I would check first, unless anyone else on here can advise?).

With regard to them going into care, this would only be a problem if we still had money in their property wouldn't it? I assume they would be expected to pay for the care home with any equity in their property, which there wouldn't be much of if I hadn't paid off the £83,974.15 mortgage against it. Have I understood that right? Would they have to sell the house and pay off the mortgage to release the money to pay for the care home? Anyway, they are only in their 60's at the mo, and I hope that we never have to put them into care, but I appreciate you pointing that out as it is something I had not considered.

molerat

OP wants to buy house from parents for £105K when valued at £170K. CGT shouldn't be an issue as value seems to have decreased by £10K but there may be an issue with the deprivation of £65K for care purposes.

ktandpete

Ahh, OK, so for care purposes, it is the difference between what they could have sold the house for and what they did sell the house for. Right, got it now. Thanks

Basically, we just want to stand on our own two feet again, can anyone advise on the best way of going about this with minimum impact on my parents? We both work full time and, between us have a reasonable income, but little excess at the end of each month (two growing children). I am sure we could tighten our belts to pay off some of the capital from both mortgages, but just don't know what the best thing to do would be considering the points made above (CGT, Care homes etc.).

It's all a bit complicated for me

Thrugelmir

Check you are able to obtain a mortgage. Your OH's record may cause you problems.

ktandpete

Hi Thrugelmir,

Yeah, have thought of this, but figured if we were only getting 65% LTV, it might help our case. He was discharged in 2006 and we have been gradually building up our credit history with a low limit credit card that we clear every month and always paying our bills on time.

I know times are bad, so this definately may be an obstacle for us, but I wanted to find what we could do first and then figure out how :-))

p00hsticks

Another thing to consider is that I think you'll have to pay Stamp Duty on the purchase as if it were at the full market value.....

Thrugelmir

p00hsticks wrote: »

Another thing to consider is that I think you'll have to pay Stamp Duty on the purchase as if it were at the full market value.....

The property will have to be transferred at Market Value by the solicitor irrespective of the amount paid.