Buying a property from a family member at below market value

Chilly-1

amcluesent wrote: »

I suggest you loan your Aunt £7000 which she uses to pay off the mortgage, possibly with the interest 'rolling up'. When she passes way, the capital and interest will be a charge against her estate which would be offset against IHT (if any!). AFAIK this debt would be repaid before any allocations set out in her will.

TBH honest it all sounds rather odd when she's married with own children!

It is odd, but her children cannot help. Her husband has not paid anything toward the mortgage and is not named on the property (their future together is also very uncertain), she also has other debts (£23k) and would like additional capital to enjoy the rest of her life - this is absolutely key for her. A loan to cover the mortgage is not enough, she could sell the house, but she has been in residence for around 30 years and wants to remain in her home. I am happy to allow her to live rent free until she dies as I will obtain additional capital when the house is sold.

JimmyTheWig

Basically, you're talking equity release but bypassing an equity release company?
I.e. you take on the role of the equity release company.

Personally it just sounds like too much of a risk for you.
If she lives until 93 (not unrealistic) that's 30 years that your money is going to be tied up for. You'll lose out.
If she lives until 68 (lets hope she lives well past this!) then you'll be in profit on the deal. But given that there's a husband and children involved then you'll be seen as heartless if you profit on it and will end up sharing anyway.

What if you lose your job, can't afford repayments, etc?

What are you personally hoping to gain from this? Are you just doing it to help your aunt out?

poppysarah

Chilly-1 wrote: »

It is odd, but her children cannot help.

I imagine though there will be rows after and you'll be guilted into doing things you don't want to.

Chilly-1

JimmyTheWig wrote: »

Basically, you're talking equity release but bypassing an equity release company?
I.e. you take on the role of the equity release company.

Personally it just sounds like too much of a risk for you.
If she lives until 93 (not unrealistic) that's 30 years that your money is going to be tied up for. You'll lose out.
If she lives until 68 (lets hope she lives well past this!) then you'll be in profit on the deal. But given that there's a husband and children involved then you'll be seen as heartless if you profit on it and will end up sharing anyway.

What if you lose your job, can't afford repayments, etc?

What are you personally hoping to gain from this? Are you just doing it to help your aunt out?

That's pretty much it - I would take on the role of equity release company.
This will sound harsh, but personally I think there would be a maximum of 10 years.
I'm currently comfortable with my living arrangements and have enough to make payments and save to cover any unemployment. I have a good career whcih will only improve and have a secure job.
I see this as an opportunity to start a mortgage, once I have sold this house, I would then use the capital for another house (my own) and Im willing to wait even up to 20yrs if necessary as I see it as a long term investment (as any mortgage). I also have a safety net of partner and family in the event I cannot make payments and I wont have to worry about paying the bills, repair, insurance etc on the house as my aunt will maintain it.
The husband and children are not opposed to the idea, and they will receive gifts from my aunt once she receives the money from me, and again when I sell the house they will be looked after.

amcluesent

>This will sound harsh, but personally I think there would be a maximum of 10 years.<

I'd be happy to predict it will end in tears with the children contesting any gains and the lawyers ending up with all the benefit.

Chilly-1

amcluesent wrote: »

>This will sound harsh, but personally I think there would be a maximum of 10 years.<

I'd be happy to predict it will end in tears with the children contesting any gains and the lawyers ending up with all the benefit.

How could they contest benefit if the house is mine and has been for 10+ years? I would simply allow her to live in the property rent free.

WestonDave

I'd be surprised if you got a mortgage on this - you would basically be looking at a buy to let mortgage on a property with no income, and a "tenant" that you can't evict under the terms of the agreement with her. From the bank's perspective if you default they potentially have to wait 30 years to get their money in which time the equity could be exhausted by the rolled up interest, particularly if rates rise.

It will be a "gift with reservation" for inheritance tax purposes so on her death the fact that she "gave" you the value in it won't detract from her estate (although it sounds like she won't be over the £300k limit). It will also be deprivation of assets for care purposes, and despite the fact that her husband has only been there a short while and hasn't contributed to the value, he may have a claim on the value if (as you appear to be suggesting is possible) they end up splitting up.

On the face of it you are being offered a house at half price - in reality you are being offered a chance to pick your way through a minefield blindfold. If you are really into taking risks give it ago, but don't complain if you get your backside blown off!

Alias_Omega

If you purchase the property, and she lives in the house, then you are becoming her landlord. Your auntie may live rent free, but you would still be eligible for the upkeep of the house & any associated checks (boiler checks etc). You will have to insure your investment too.

£23,000 income comes to about £1350-1400 a month take home, which your £70.000 mortgage (plus fee's) will be about £450 per month.

You of course wont be able to live in the house that you now own, so you will need to rent another house, or even purchase another house. Add this cost to the costs of the first house.

Then you have the "what if i meet someone, and have kids", then pretty much any remaining cash left is swallowed up.

At the minute it appears a good deal, but you need to ask yourself, what happens if -

a) Your aunt lives to 80-90 years old
b) Can you afford to repair the house if it breaks
c) Can you afford insurance + annual checks
d) Could you evict your auntie if you had to sell?

I forecast that things will go well, until the house gets too costly to run. The cash you pay on the mortgage will be needed elsewhere in your life..


If you were really really keen to do this, i would advise maybe to split the costs between 2 other people, and go £23,000 each on this, which probably could be funded from a un-secured bank loan. You will then be liable for a 1/3 of the costs to keep the house in good repair..

Chilly-1

and if the arrangement was informal? i.e. no agreement. just an outright purchase of the house for my own purposes. then i allow her to 'lodge'?
Why would the bank then have to wait? could they not simply reclaim?
Would the husband have any claim after the house fully belongs to me (regardless of the price paid or vcurrent value)?

so the issues could be;
1) I default - lose the house, aunt has nowwhere to live and I have a large debt
2) I cannot get a mortgage due to the nature of arrangements or the availability of mortgages
3) Husband makes claim against value of the house after its sold
4) Aunt is unable to pay for care

Please feel free to suggest the repercussions and possible solutions to the above!

RedTomato

This is a minefield and if a professional company won't give her want she wants in terms of equity release, there's a reason for it.

Have you ever been through death/inheritance in a family before where there is a sizeable asset? So often people change, they really do, things can and often do get messy and nasty.

What are these other 23k of debts? Are they unsecured? Will she continue to be able to pay them? Do you know that finance companies are having some success in getting charges on properties despite loans initially being unsecured?

It sounds like your Aunt has a history of not being able to live within her means? You have no savings. It doesn't sound like you should be trying to go into complicated financial transactions.

I don't agree that you should take a 7k loan, loan interest is at a higher rate than mortgage interest at the moment. On your low salary with no savings you can't really afford to throw away this interest for a future promise.