parent buys 2nd house, we move in, sell ours then buy off them

iammoving

Hi all wonder if someone could advise if they see any major problems with our plans or suggest a better way of achieving what we are trying to achieve.

Current situation:

Current house value = 140K
Current oustanding mort = 96K
My Salary = 26K PA (Wife 5K but about to go on maternity leave)
House not on market yet

We have found our idea next house, a family member has offered to buy the house for us so we can move in before selling our house. Offer put in and accepted.

New house = 175K
We are being gifted 35K (very lucky) hence house purchase price to us when we buy it will be 140K

This is where things get complicated. As we don't have any savings said family member is paying the following fees for us to be added to house purchase price when we buy it:

£3000 - stamp duty, sol, transfers, searches etc. costs to buy new house
£1000 - Cost incurred buy family member to sell house to us
£650 - removals cost for us to move into new house
Totalling £4650

This now means we need to purchase the house for £144,650

If we sell our house (a bit under market value) for 140K we then have the following costs:

£2800 - estate agent fees (guessing worst rate will be 2%)
£2700 - stamp duty, sol, transfers, searches etc
£2915 - interest to pay family member if it takes 5 months for our house to sell
Total = £8415

£140,000
- £8,415 (cost above)
- £96,000 (current mort)
= £35,585

So now we have about £35,585 deposit for new house purchase of 144,650
So our mort will be about £109K

I have spoken to our current mortgage providers and confirmed our current 96k is portable. To have some money left over we would like to try and borrow 113k (an extra 17K) but if we can't will have to borrow 109K.

the new house was going to be purchased in our name as solicitors advised we would then not have to pay stamp duty twice, after talking to our mort provider who wouldn't allow that as we would not technically be purchasing a house (paying family member debt instead) and taking advice from a broker the house is now being purchased in thier name so our purchase is as standard/normal in the eyes of our lender as possible.

We have thought about looking at using said family member as our mort provider and having an agreement in place to pay them back monthly but decided it would be messy ie cant really go to family member each year and say "ive found a mort at lower interest rate than where paying you - can u match" ;-)

The only downfalls i can see from what we are doing is:

- with the 35K gift brining the house price down from 175k to around 140K our LTV gets worse, although this is only on the additional borrowing if we stay with current lender.
- We will be paying more fees than a straight forward move and having to pay stamp duty twice.

Oh and we have get to confirm but someone has told us whilst we live in the new house before selling ours we have to legally pay the house owner rent and they would be charged tax on that??

This all sounded simple when we first fell in love with the house, thought we couldn't have it and where then told " yes you can, ill lend you the money until you sell yours" !

Sorry if people cant follow this, thanks for reading anyway, its hard to put it all down on paper.

all figures are estimates in worse case scenario, hopefully our house will sell for 145K, and quicker than 5 months (actual market value is estimated at 148K) and some cost may be a bit less.

Any advise /comments,

ill probably think of some more specific questions later... like would it be better for me to try and borrow additional money now against current house? and how should i word this better to my current lender so as to not totally confuse them.

Cheers ;-)

LandyAndy

Why don't they buy your house off you for £175k, leaving you to buy the new place. Then they get their money back when your current place sells. It will obviously sell for less than they paid you for it but they are looking to take a hit on your behalf anyway..

GDB2222

Under this proposal, you have two transfers of the new house, two lots of stamp duty etc. At the same time, you will in fact effectively be borrowing £140k on the new house (you'll be paying interest at least) whilst still keeping your existing mortgage. I think you can simplify this.

What happens if:
1. Your family member lends you the £96k so you can discharge the mortgage on your present home. It can be secured on your present house.
2. You buy the new house in your name, transferring the existing mortgage across and topping the mortgage up a bit if they will let you. Borrow the rest of the money from family member.
3. When your house is sold, repay the family member's loan - around £140k or so in total.

That will save you one lot of stamp duty and at least one lot of solicitor's fees.

Bear in mind that you could find yourself in a totally desperate situation where you end up taking a real haircut on your present house to sell it. It's a high risk strategy having two houses when you only need one, especially at this sort of time. The simple course is just to sell your home, and THEN buy a new one.

00ec25

the implications are for your parents

1. they will own a second home they have never lived in therefore will have to pay Capital Gains Tax when it is sold

2. becuase they are your parents this is classed as a "connected person" and therefor ALL values used throughout must be at full market value. They can sell it to you at a discount but their tax position will be by reference to the market value, not what they got in cash from you

3 stamp duty will similalry be based on market value becuase you are "connected persons"

4. you do not have to pay rent to your parents, if you duid pay rent then it clarifies their tax position with respect to Inheritance taxc as the discount they are giving you is classed as a gift for IHT and so the value would be incldued in their estate, however what is the value of their estate , is it liable to IHT?
if they do receive rent then yes they would have to declare it and pay any Income tax due if there is a net profit after they have deducted any allowable costs, but because it is then a commercial rent rather than a gift it would remove the IHT implication

poppysarah

It all sounds very complicated and probably not something you will want to be worrying about when you have a new baby.

Still a huge X salary though.

What if you can't sell your house for more than 90k?

I reckon unless you pee money you're always best selling before buying.

lincroft1710

In current market your parents wouldn't have to worry too much about Capital Gains Tax. They would only be liable for CGT if they made a profit from the house sale.

Doozergirl

LandyAndy wrote: »

Why don't they buy your house off you for £175k, leaving you to buy the new place. Then they get their money back when your current place sells. It will obviously sell for less than they paid you for it but they are looking to take a hit on your behalf anyway..

What he said.