Releasing moeny from existing property to help FTB

richierich14

Dear all,

My parents have a 2nd home they wish not to sell but release equity to help me buy a first house. What is the best way to go about doing this? A family friend has suggested getting a valuation and approaching a building society to hand over house deeds for liability and release up to 90% lump sum for me. Can anybody help me how this is best acheived?

help appreciated

Rich

ognum

First a question, do your parents have a mortgage already either on their main residence or on the other house?

They could get a mortgage on this house if the answer is no or even perhaps if the answer is yes but they would need to apply in the normal way and fulfill the criterea.

- Value of house
- Ability to pay back loan over their working life
- Creidit rating
- Etc etc

I am not sure how old you are Rich but I guess your parents may not have 25 years of working life left so they would have to pay back loan over a shortened time.

Have you thought about just saving the money yourself and getting a mortgage or your parents giving/lending you a small sum as the deposit.

kingstreet

richierich14 wrote: »

Dear all,

My parents have a 2nd home they wish not to sell but release equity to help me buy a first house. What is the best way to go about doing this? A family friend has suggested getting a valuation and approaching a building society to hand over house deeds for liability and release up to 90% lump sum for me. Can anybody help me how this is best acheived?

help appreciated

Rich

Where do you live, and where are you buying?

Your parents are unlikely to be able to raise 90% on a second property. Is the property rented out? If it is, they would need a buy to let mortgage and if they go above 75% of the value, the rate and the fees will suddenly get a lot higher.

poppysarah

equity release = mortgage.

Do they want more debt?

Why can't you get your own mortgage?

HiYield

I have read that this is an effective way to avoid IHT, if this is your/your parents' other motivation. By increasing the mortgage (or introducing one) this will reduce the amount which is taxable by IHT. This is only really a consideration when £650k (two times £325k) or more assets are held, which could easily be the case if they have two homes.

Other points:

90% does seem high, but depends on circumstances.

Payments will have to be made to finance this loan either by your parents or rental income if they rent it.

BTL mortgage required if renting the property.

richierich14

Thanks for all your replies and sorry its been a few days. Its obvious that more details would help to answer my query.

I'm in my late 20's and my parents are in their pension years so it would be difficult for them to meet todays mortgage criterias. We are just trying to exhaust all of the possible options with the Assets they hold. they don't currently have a mortgage on either property but currently rent the one we were considering releasing equity on.

I currently live in Winchester, yes i know not the cheapest place in the country to live but this is where my job is. I have considered rasiing the mortgage myself and have £25K as a deposit, which my parents would consider matching in order to get a 75% mortgage.

We were considering perhaps changing the legal owner to myself, it would then become my sole residence that i could sell, this way my parents would avoid IHT?

Thrugelmir

richierich14 wrote: »

this way my parents would avoid IHT?

This however is no defence if a local authority subsequently makes a claim under deprivation of assets rules.

Suggest you seek professional advice. So that all aspects of your parents finances are considered.

ognum

richierich14 wrote: »

Thanks for all your replies and sorry its been a few days. Its obvious that more details would help to answer my query.

I'm in my late 20's and my parents are in their pension years so it would be difficult for them to meet todays mortgage criterias. We are just trying to exhaust all of the possible options with the Assets they hold. they don't currently have a mortgage on either property but currently rent the one we were considering releasing equity on.

I currently live in Winchester, yes i know not the cheapest place in the country to live but this is where my job is. I have considered rasiing the mortgage myself and have £25K as a deposit, which my parents would consider matching in order to get a 75% mortgage.

We were considering perhaps changing the legal owner to myself, it would then become my sole residence that i could sell, this way my parents would avoid IHT?

Firstly just bcause you work in Winchester you dont have to live there, there is a world of difference between the cost of property in Winchester to perhaps Southampton, just a few miles away. I know the Winchester market well!

I am not sure of the ramifications of your parents giving you a rented property and still keeping the rent themselves, this could be considered tax avoidance. If its your house the rent is yours too and then you have to pay tax on it.

If you are a first time buyer and would want to buy another property you would not get stamp duty exemption if you have already owned a property.

Maybe your parents should sell the property and simply give you the money if they live seven years (one of them not needed to be both) there will be no IHT but they will loose the rent they have from their rental property.

I guess your parents could do an equity release from the house they live in or the rental depending on their ages but that would be costly as they would not get markey value. Make sure they read the small print because hen my friends mother died the company demanded possession of the house two weeks after death so the house had to be cleared and sorted in those two weeks.

The_Blue_Hatter

Simple resolution. Put a mortgage on the 2nd home of 50% and use the rest as your deposit as a gift from your parents. Pay your own mortgage and also the new mortgage on your parents 2nd home although you'd probably want to pay them cash Either of them live for more than 7 years and no IHT to pay.

richierich14

Thanks for all your comments, certainly alot to consider, above the tricky decisions a normal first time buyer, if there is one these days. I shall try and answer some of the questions al together. My parents and I met with the bank and looked at buy to let mortgages and consdired taking out a low min £25K out on the 2nd home to balance repayments and the term. This would boost my deposit so i could get the loan to value % down. However we have not made any final decisions. Perhaps trying to find a cheaper house is the answer. I have looked at Whitchurch area which has good transport links but values are 15-20% cheaper. Equity release isn't an option we are willing to take.

Nixer

Do you drive? I think Alton is still quite a bit cheaper than Winchester (and probably Whitchurch), but there's no train to Winchester, only bus.