Buying house from my Mum - transfer of equity for deposit

Flower567

Hi Guys

Am new to here but was wondering if anybody could give me some advice. About 3 years ago my partner and I wanted to buy the house that we currently live in. However, at that time we were unable to obtain a mortgage due to various factors such as my credit rating was poor at that time and my partner was self employed. However, since then my credit rating has improved and my partner has also been employed for the last 2 1/2 years. My Mum therefore bought the house which is solely in her name. However, we have paid the mortgage on the property for the last 3 years.

We bought the house for £120,000 and my Mum put down a £12,000 deposit. We recently had the house valued at £140,000. The current mortgage is with Birmingham Midshires and is on an equity basis for £108,000. My partner and I have now decided that we want to put the house in our name however, we do not have enought money to put down as a deposit although my Mum has said that she is willing to transfer any equity in the house over to us.

I was wondering therefore if it is possible for us to obtain a mortgage and transfer the equity as a deposit - any advice would be greatfuly received!

Hippychick

It is possible to remortgage but you would have to borrow 132k and if your house is worth 140k then that would mean a LTV of 94%, at present there are very very few products available at such a high ltv so you would pay a lot more in interest.

Can you not pay your Mum back monthly or save up the 12k to pay her back then do the transfer of equity?

Flower567

Thanks Hippychick - to be honest I find all of this totally confusing!! What does LTV mean?????

My Mum does not want the £12,000 back she is prepared to give us that as a gift and sign over the equity - does that make it easier?

st999

How much does your Mum want for the house?

Stan

Flower567

Hi Stan

My Mum wants nothing at all from the house - when we bought it, it was on the premise that it was mine and my partners she only put it in her name as we could not get a mortgage so all the equity in it is ours.

silvercar

108k mortgage, property value 140k = 77% LTV. There should be no problem getting a mortgage for this percentage provided (a) you have income to justify a 108k mortgage and (b) your credit rating is fairly clean.

Your mother is effectively gifting you the deposit of 32k. Some lenders will be happy with this as it is from a family member rather than a dodgy builder inflating the price to achieve a false LTV. A broker will know who will accept this.

There is a capital gains tax issue if your mother has not lived in the property since purchase. She should be able to persuade the revenue that she bought in her name to enable you to get a mortgage. If you can show that you have paid the mortgage (or given her the money to do so) and paid for maintenance, the revenue should be persuaded. If not her capital gains tax bill is based on the gain the propert has made less buying and selling costs. With a CGT allowance of £10,200, a £20k gain would incur a bill of about £1.5k depending on exact costs.

00ec25

Flower567 wrote: »

Hi Stan

My Mum wants nothing at all from the house - when we bought it, it was on the premise that it was mine and my partners she only put it in her name as we could not get a mortgage so all the equity in it is ours.

Hi

legally however that is not the case!
your mother is the legal owner of the house, it is not her main home as she does not live there and so she will be liable to Capitalk Gains tax when she sells it. This will apply whatever methiod you use, ie if she gifts you the house for free, if she gifts you the equity etc as she is deemed to have made a "disposal" of an asset.

As her daughter you are formally a "connected" person and therefore for tax purposes only the value of the house when your mum transfers the ownership into your name will be its then market value.
So your mother will be facing a Capital Gains Tax liability of £140K - £120K = £20K. She can deduct her annual allowance form this (assuming she has no other gains that year) plus assorted legal costs, eg: Gain £20K - annual amount £10,100 - (guess) legal fees £500 = £9,400 @ 18% tax = £1,692 tax to pay by your mother

she could avoid this by doing various legal tax efficient activities, but she will need professional advice on this - eg "trusts", "gift hold over"

zzzLazyDaisy

All of this pre-supposes that the valuation of £140k is correct.

If you bought only 3 years ago (2006?) and sold on the open market, you'd be lucky if the house has in fact gone up by £20k. The lender will do its own valuation and may not agree with yours. How will your figures stack up then? Although a slightly lower valuation might be better from your mum's point of view, re CGT.

Where did you get your valuation? If it was from an estate agent, bear in mind that they often give you a higher valuation to get your business, and then advise you to lower the asking price after a few weeks.

Of course if you are sure that similar houses have sold recently for that price, then you may be on the mark. You can check what houses have actually sold for (rather than the asking price) at

http://www.upmystreet.com

Flower567

Thank you for the above of which is a great help - I appreciate the comments about CGT - I guess this is something we would pay on behalf of my Mum but will cross that bridge when we come to it - still just in the process of trying to know whether we would be succesful in obtaining a mortgage without a deposit (althought the deposit that my Mum has put down and any equity) and how this would work.

We did get the house at a bargain price and it was not on the open market - the guy that was selling it needed a fast sale and was a family friend. The house was valued by an estate agent at £140,000 - it is a 3 bed terrace and a house just 2 doors down was a 2 bed and recently sold for £132,500.

If then to say that the house was valued at £130,000 (which would be better for CGT) is it likely we would still get a mortgage on the gift from Mum in terms of the deposit and equity - I do not understand at all how this is done or whether it is possible. We have an appoitinment with a mortgage broker next week but dont want to go and see him and be totally clueless!

Thanks in advance for any advice.

silvercar

You need to see an experienced whole of market mortgage broker (or post on the mortgage board). They will know which lenders will accept a vendor gifted deposit from a related party. There has been a big fuss about vendore gifted deposits as new developers would inflate a house value and then "gift" the extra to the buyer to create a false deposit. ie developer prices house at 200k gifts deposit of 20k and so the buyer can get a 180k mortgage claiming 20k is the deposit. Lenders have wised upto this and are valuing new builds cautiously, so this loop hole has all but closed. In your case the gifted deposit is from a relation, so clearly its gift is more understandable than from a developer. Some lenders will accept this provided the valuation stands up.

CGT is a separate issue and would normally be payable. However there have been cases where the revenue have accepted that the property was put in one persons name to enable a mortgage. Provided you have been making the mortgage payments (via your mother) and been living in the house and maintaining it, the revenue should accept that you have been the beneficial owner all along. The beneficial owner can be different to the legal owner.

However for the size of the likely CGT bill it would probably not be worth appointing an accountant to fight your case if the revenue become difficult.