Raising a big deposit

heppy23

Apoligies in advance for long post.

Thinking of buying a house in the next year or two. Currently live in a first floor flat which is a pain with 2 small children.

Looking to buy something decent with plenty of space, am thinking of between £200-300k.

The flat where we live now belongs to my parents but we have an agreement that to all intents and purposes I can do what I want with it. My sister has a flat in the same building and rents hers out.

The building is split into 3 flats. The ground floor one has the freehold and the 2 other flats are leasehold. My parents own all three.
The have no mortgage to pay.

We looked into me and my sister getting the leases ages ago but we never got anywhere with it, shame as we could have got past the 7 year limit for bypassing inheritance tax etc.

SO we are looking at raising money to buy somewhere. Between me and my other half we could probably scrabble together £20k.

What I am thinking is this (please dive in and correct any assumptions I may have made).

My parents keep the lease on my flat but take out a mortage on my flat to raise a lump sum. The repayments on this mortgage would be covered by letting the flat. I am thinking interest only mortgage then pay the mortgage off by selling the whole house when my parents die.

Take the lump sum and add what we can then get a mortgage of our own to buy a house.

What do you think?

Some figures:-
Price of house to buy £200-300k
Money to pay off OUR mortage - about £6-700 per month.

Value of flat to raise money against - £120-150k.
Income from flat - about £600 per month.

Thrugelmir

heppy23 wrote: »

Value of flat to raise money against - £120-150k.
Income from flat - about £600 per month.

Questionable whether letting the flat would generate sufficient income to cover the mortgage interest ,administrative and maintenance costs.

So you may have to subsidise the venture.

dimbo61

You need to got and see an accountant and TAX expert or you and your sister could have a large tax bill from inheritance tax and taking out a loan/mortgage on the flat ( which is in your parents names) could lend them/you into tax problems

CloudCuckooLand

Think you need to consider the whole picture, retirement planning, IHT and other tax planning, wills etc. Doing it piecemeal might suit 1 flat, not necessarily all the parents' assets/income/plans...and result in CGT headache instead, for example.

i.e. what if the parents live another 40 years, do you want to be paying interest (and organising tenants) for all that time?

Selling to you, at a discount might be a partial answer. You say its a shame about the 7 year IHT limit - are they of an age where 7 years is going to be a problem? Getting their own mortgage could be an issue, if so...

heppy23

CloudCuckooLand wrote: »

Think you need to consider the whole picture, retirement planning, IHT and other tax planning, wills etc. Doing it piecemeal might suit 1 flat, not necessarily all the parents' assets/income/plans...and result in CGT headache instead, for example.

i.e. what if the parents live another 40 years, do you want to be paying interest (and organising tenants) for all that time?

Selling to you, at a discount might be a partial answer. You say its a shame about the 7 year IHT limit - are they of an age where 7 years is going to be a problem? Getting their own mortgage could be an issue, if so...

The subject has been raised twice. When we moved in 1998 we wanted to split the leases then (when the whole value of the property was £145k) but my parents were advised not to by their solicitor "in case you fall out with your children". We are not a "falling out" kind of family.

We looked at it again in about 2003 and the outcome was that my parents have become tenants in common on all the properties.
When one dies their "half" gets split three ways between the survivor and me and my sister. This should in theory stagger any transfers to keep them under the IHT threshold.

Looking back we should have done something then as my parents are now in the early 70s so are probably less like to survive the next seven years (compared to the last).

[Deleted User]

Would your parents be excluded from getting a mortgage based on their age? (I don't know the answer, just something to look into)