Parents gifting house with oustanding mortgage - how?

choc_mouse

This is the situation:
They have an outstanding mortgage of £35k. The property value a few years ago was £160k, but similar houses in the area are selling for over £200k.

Our next plan of action
Parents gift the house to me.

Parents will continue to live at the house.

I currently live and plan to continue to live with my parents in the short term. I am mortgage free, rent free, have minimal outgoings, almost zero ongoing debt (except student loans) and an excellent credit rating.

My questions to you money saving experts is, is this plan doable and what do we need to do?

I've never purchased a home so I don't know where to start especially since this is not the typical "first time buyer" scenario...

Other points
- I don't want to be finacially linked to my parents. E.g. adding my name/income to their mortgage is out of the question.
- We see taking over the mortgage (or selling) as inevitable as parents cannot afford it anymore, but we still want a roof to live under.
- Parents are happy to give the house to me.

CLAPTON

the full facts do matter;

why were they is 70k of debts matters as it affects the sensible solutions

whyever did the family chip in 30k of savings without thinking through the long term solution

what is your income

what is your plan if you want to move out and live with a partner or move to another part of the crountry

beecher2

Aren't the other family members wanting something back for their part of the 30k?

What sort of security do your parents have regarding living there? What happens if they get in to more debt?

Think you should get professional advice, and include all family members in the decision making process.

choc_mouse

OK

why were they is 70k of debts matters as it affects the sensible solutions
>> Very simply, they used cash advances to pay off other credit cards and mortgage bills - over a long time. Silly, I know.

whyever did the family chip in 30k of savings without thinking through the long term solution
>> We are family. We had considered all options but the immediate problem was we needed a buffer zone because all 7 cards were near or over the limit and the interest was ridiculous (still is but collectively affordable).

what is your income
>> £38k/year

what is your plan if you want to move out and live with a partner or move to another part of the crountry
>> Pay mortgage on parent's home - it's not a lot to be honest. It will be their home until they die.

choc_mouse

Aren't the other family members wanting something back for their part of the 30k?
>> I'll return sibling's share (less than £5k).

What sort of security do your parents have regarding living there? What happens if they get in to more debt?
>> None. Just word of faith. Actually, it was just one of my parents that caused the problem and it's been made absolutely clear there will be no further acts of kindness for them should they not learn from their mistake.

Think you should get professional advice, and include all family members in the decision making process.
>> Yes, I agree but who is that profressional I should go to?

holly_hobby

choc_mouse wrote: »

Our next plan of action
Parents gift the house to me. I take a £75k mortgage = £35k for existing mortgage + release equity of £40k. Use the extra cash to clear the credit cards.

Parents will continue to live at the house.

I currently live and plan to continue to live with my parents in the short term. I am mortgage free, rent free, have minimal outgoings, almost zero ongoing debt (except student loans) and an excellent credit rating.

Ok ... in essence and to keep things simple, you are essentially buying the property from your parents, at a discounted and total purchase price of 75K, on a market valuation of 160k.

Upon receipt of which your parents solicitor will fully redeem their existing 35k mge - with the remaining 40k payable to them. (which I will imagine they will transfer to your bank acct).

You in the first place shall need to source a lender who is happy with gifited deposits/discounted pch price - as otherwise they will still want the normal LTV applied to the 75k mge being taken. Meaning that you will need to add extra capital to the sale to acheive this.

choc_mouse wrote: »

Other points
- I don't want to be finacially linked to my parents. E.g. adding my name/income to their mortgage is out of the question.
- We see taking over the mortgage (or selling) as inevitable as parents obviously cannot afford it anymore, but we still want a roof to live under.
- Parents are happy to give the house to me. Basically, for the risk of taking on all their debt, I get the house.

I'd rather not discuss the pain of why this happened. Just trying to focus on damage limitation and the best way out.

Its really no ones business how this situation ended up or the ins and other family arrangemets and financial complications that may occur with your parents property being taken out of the family estate on death. That is for you and your family to discuss and satisfy - just one point though ..... as the property will be in your name only your siblings will in effect be deprived of its value as part of your parents estate on their death. Make sure for obvious reaons that your parents and their agreement to this is legally watertight ...

The other big issues we have here though, is that the sale of their property to you, will be classed as their disposal of asset, if your parents need state support for any future long term care needs.

Futher to which, there may also be an IHt liability re the gifted amout - which in ordinary circumstances would apply for the preceeding 7 yrs from the gift, on a sliding scale.

However, your parents willl remain the property ( continuing to enjoy benefit of the gift) therefore this would be a gift with reservation, and the normal PET rules cease to apply.

On your death what happens to the property - inc in your will with a lifetime tenancy for them would be the answer. And effect suitable life cover on yourself - to repay os mge & protect their interests.

On the face of things, your idea is a good one, BUT there are lots of serious considerations to be made .. including of course the fact that should you wish to be releaved of your mge liability (whilst your parents are still here) where does that leave them ? (but that is not for anyone on here to discuss - but just for you and your family to factor into any decisions made).

To be honest, although there are a lot of qualified individuals who advise on here, there are also lots of well meaning ones too - and something as serious and complicated with regards financial consequences needs proven qualified guidance from your Solicitor and a suitably qualified broker.

Hope this helps

Holly

zzzLazyDaisy

I think - if I understand the situation correctly - is that you are not really talking about a gift of the house, but a sale to you at under market value, with your parents having the right to live in the house for the rest of their lives?

There are complications in this proposal some of which are:

1 if your parents need to go into care at some point, this could be seen as deprivation of assets and the loss of market value could be clawed back. The authorities have extensive powers in this, so you do need to take advice

2 Even though the house will be registered in your name, your parents have the right to live there, so there may be IHT implications, in that the house may still form part of their estate - again, you need advice

3 If you eventually move out leaving your parents living there, that makes you a landlord and you must comply with all the legalities even though they are not paying rent

4 Once you have moved out, you are at risk of incurring CGT liability when you eventually come to sell the house, which could be quite high bearing in mind that you would be buying for under market value but selling at market value

If, on the other hand, you put the house and mortgage into the joint names of all three of you, the house would automatically pass down to each successor as the others died and this would get round the potential IHT/CGT implications, and it might also mitigate the effect if one parent has to go into care, as there are protections in place for the other joint owners.

Whatever you decide to do, you would certainly need to take life insurance on your life, otherwise the parents could end up much worse off if something happens to you first.

Basically, what you are proposing to do is potentially fraught with pitfalls and you do need to take legal advice to ensure that you know what you are dealing with.

Edit - cross posted with Holly's post above.

CLAPTON

well there seems to be several types of solution

1. they sell the home, pay off their debts and buy something cheaper (obviously that depends upon where you live and prices)

2. they sell and rent: potentially this may allow them to claim housing benefit etc

3. you can buy the property as you suggest
how this is fraught with difficulties
-you will have a 70k mortgage which will be considered when you want to buy a place of your own
-while 400 pm month may not be much now, it's a commitment for 25 years; your circumstances will change- partner, children, job situation etc and may be a drag on your for years and cause resentment with your partner
-where everyone may agree it's a great plan now, once the immediate crisis is over and in a few years they may think that 'giving ' you 100k was a bad idea and it may cause a family rift (both with them and your siblings)
- in the future you may have financial difficulties and there home may be at risk



I'm sorry it's a bit negative but it does need very careful consideration as to the future

Mojisola

choc_mouse wrote: »

The property value a few years ago was £160k, but similar houses in the area are selling for over £200k.

Lots of good advice already given.

I don't think inheritance tax will be a problem in this case as the parents don't seem to have any capital other than the house.

choc_mouse

Thanks everyone for some excellent advice/comments. I already knew about IHT and CGT but had not taken into account housing benefits.

As a family we have had discussions about the options based on the facts as we see them now. There are countless "what if's" for the future and we accept there might not be a happy ending. Parent's fault. No argument.

Adding my name to the mortgage seems like the easiest option but having looked at my parent's credit reports, I do not want to be linked to any of that. That would also leave me legally liable if my parents defaulted on any future debts.

It's clear we need to start consulting professionals now. Assuming this plan will go ahead:
- Are there specialist solicitors or will any solicitor do?
- What type of mortgage (first time buyer, re-mortgage, equity release) am I looking for?

choc_mouse

holly_hobby wrote: »

You in the first place shall need to source a lender who is happy with gifited deposits/discounted pch price - as otherwise they will still want the normal LTV applied to the 75k mge being taken. Meaning that you will need to add extra capital to the sale to acheive this.

Thanks Holly. A deposit should not be a problem. We only "threw away" what we could afford/had lying around and I was saving for a house deposit anyway, which has been dented but it's still intact.