How to get a mortgage with no deposit but equity?

easypeezy

Fortunate but frustrating one this...

I have been offered to buy my parents house worth around £500k for a price of £150k, a very fortunate offer I know (part of inheritance), but tried getting an offset mortgage with First Direct and they said that because I was purchasing the property for £150k that it would be a 100% mortgage and they couldn't offer it to me!?? I explained the logic of the £350k equity in the property but that fell on deaf-ears.

I'd be really grateful if anyone can suggest a solution to this?

must_try_harder_2

Agree to pay around 190k for the house and your parents give you 40k cash so you have a 20% deposit?
Obviously this relies on your parents having that sort of cash

beecher2

Go and see an adviser and ask them about gifted deposits as you should be able to use some of the equity as a deposit because it is your parents selling the house to you.

pjcox2005

The mortgage sounds like it should be possible to sort. As a side issue, as the sale is undervalue have you considered the following implications:

Capital gains tax - sale to connected party so market value would be used. Shouldn't be a problem if it's always been their home residence but could create a tax bill for them if not.

Inheritance tax - Will be a potentially exempt transfer so would remain in their IHT estate for 7 years post transfer i.e. potential tax if they die before then.

Deprevation of assets - Depends on age but if they need the local authority to provide care then they may see the sale of assets at undervalue as deprevation of assets and refuse care.

None of these may be an issue, but still worth considering to check.

caledonian_princess

I had the same problem earlier this year, my lender was the Halifax. I wanted to buy out my partner from our jointly owned property for 40% of the valuation, I ended up giving them a 10% deposit which, luckily, I had but it did seem a bit ridiculous that, with all that equity, I still needed a "cash" deposit rather than the equity being sufficient deposit.

easypeezy

Some good tips - thank you...I'm aware of the IHT and obviously banking on them living 7+ years, the capital gains shouldn't be an issue as it's their only residence for the past 15+ years. Not sure about the 'Deprivation of assets' by the Local Authority, would that lapse after 7 years as with IHT?

I'm racking my brains as to how this could be done - I thought I could get a solicitor to confirm the equity of £350 was used as deposit but was only being moved on paper, through the house purchase, from my parents to me. Not sure if solicitors would do this, another thought was to use an IFA but then which one....?

beecher2

easypeezy wrote: »

Some good tips - thank you...I'm aware of the IHT and obviously banking on them living 7+ years, the capital gains shouldn't be an issue as it's their only residence for the past 15+ years. Not sure about the 'Deprivation of assets' by the Local Authority, would that lapse after 7 years as with IHT?

I'm racking my brains as to how this could be done - I thought I could get a solicitor to confirm the equity of £350 was used as deposit but was only being moved on paper, through the house purchase, from my parents to me. Not sure if solicitors would do this, another thought was to use an IFA but then which one....?

go and see a mortgage adviser and ask them to talk you through gifted deposits.

easypeezy

Thanks - Any suggestions on how to find a independent financial advisor to discuss gifted deposits with. My previous experiences with them years ago have never been that great.

getmore4less

Gifted deposit seems the correct route.

Do they need the money now

Could look at
Have them gift the house,
then get a mortgage, some lenders will need 6 months

then give the parents the money.

kingster2069

An easier but more expensive route and possible worth considering is a bridging loan. This would be a short term long to buy the property and then you could seek out a mortgage. You might even be able to get the mortgage ready, so the bridging loan is place for a minimal time.
I really does depend on your circumstances.

ViolaLass

easypeezy wrote: »

Some good tips - thank you...I'm aware of the IHT and obviously banking on them living 7+ years, the capital gains shouldn't be an issue as it's their only residence for the past 15+ years. Not sure about the 'Deprivation of assets' by the Local Authority, would that lapse after 7 years as with IHT?

No, local authorities can look as far back as they want so you do need to consider it.