Buying parents house £100k under value

mmdp4wy2

Hi guys,
Great site this is!!! Right, I'd appreciate some help here as the family are currently in financial crisis...
My parents are getting old now, and both cannot afford to keep up with the mortgage payments and other debt. I'm an only child and they have asked me if I would buy the house off of them to help them with the debt. This is also in my benefit as I am currently giving them over £1000 per month for the past year.
I want to help, but I can only afford to get a mortgage to borrow £85000 with £15000 deposit. I am only 26!!
What I am most interested in finding out is....
1) What happens to the other £100k difference in value? Can I claim that as equity to buy another property? Or does it stay under my Dad's estate because it is essentially a 'gift?
2) If it does remain under my Dad's estate, and I sell the house in the next few years for the proper market value of £250k let's say, where does this extra £150k 'profit' that I have made go?
3) Would it be better to only purchase 1/2 share of the property for equity purposes, if I intend on gearing buy-to-let properties in the near future?

Any help is much appreciated!

:money:

BitterAndTwisted

mmdp4wy2 wrote: »

Hi guys,
Great site this is!!! Right, I'd appreciate some help here as the family are currently in financial crisis...
My parents are getting old now, and both cannot afford to keep up with the mortgage payments and other debt. I'm an only child and they have asked me if I would buy the house off of them to help them with the debt. This is also in my benefit as I am currently giving them over £1000 per month for the past year.
I want to help, but I can only afford to get a mortgage to borrow £85000 with £15000 deposit. I am only 26!!
What I am most interested in finding out is....
1) What happens to the other £100k difference in value? Can I claim that as equity to buy another property?

Yes, you could.

Or does it stay under my Dad's estate because it is essentially a 'gift?

It cannot remain as part of your father's assets if it truly was a gift.

2) If it does remain under my Dad's estate, and I sell the house in the next few years for the proper market value of £250k let's say, where does this extra £150k 'profit' that I have made go?

An estate only starts to exist once someone has died. If you bought the property for £100k outright you would realise that profit only once you remortgaged or sold.

3) Would it be better to only purchase 1/2 share of the property for equity purposes, if I intend on gearing buy-to-let properties in the near future?

NO! If you wanted to co-own a property you and your parents would need to apply for a new mortgage together.

Any help is much appreciated!

:money:

What you haven't disclosed is where your parents plan to live once they have sold the property to you. Is the sale going to leave them with enough funds to buy another property outright or are they going to rent somewhere? Would the £100k they would receive from you clear the outstanding mortgage and their other debts?

mmdp4wy2

Thanks BandT for the quick response!
Well my parents would stay in the same house until plans change. I would not charge them rent. And the £100k would clear all debt leaving £30k to live off, excluding state and private pensions!
Cheers buddy

BitterAndTwisted

It sounds to me like it would be a million miles better for your parents to sell the property on the open market than sell to you at £100k less than the current value.

Also, there are complications in getting a residential mortgage and then having someone else living there, paying rent or not Do you currently live at home with your folks? Are you au fait with what is termed "Deprivation of Assets" and whether this would be pertinent in your parents' situation if they sold to you?

mmdp4wy2

The problem with selling the property on the market is, it could take a while in this current climate...Which means I'll still be paying £1k plus a month just to cover Father's credit interest! And also, they would have to rent or buy elsewhere afterwards.
Cheers

BitterAndTwisted

Do you currently live at home with your folks?

mmdp4wy2

Oh and yeah I live at home with them at the moment, but the whole equity question was important because I would like to use the equity for another mortgage on my own house.
Not too aufait with 'deprivation of assets'...could you explain this further? Although...it is pretty self-explanatory... Haha

Richard_Webster

I don't suppose the parents' assets would exceed the IHT threshold but if they transfer the house to you at an undervalue and continue to live there then the difference is treated as part of their estate for IHT purposes and the "7 year" period for gifts not to count doesn't start to run until they move out.

dancingfairy

Basically they may not qualify for benefits/help with help nursing home costs etc if the council thinks they have given away an asset to avoid having to pay for any care themselves
What I would suggest is that you get your parents to speak to someone like the CAB or National Debtline or CCCS( make sure it is a free,impartial debt charity) to go through their options.
For instance they may wish to consider a dmp, perhaps token payments until they can sell the house (an opportunity to downsize perhaps?), an IVA, bankruptcy etc etc. They need to go through all the options availbel to them.
Best of Luck
df

Richard_Webster

but the whole equity question was important because I would like to use the equity for another mortgage on my own house.

Your house is worth what it is worth - you can't magically add the £100K to its value to enable you to get a mortgage or a more favourable/larger one on your own house.

BitterAndTwisted

Have a look at the Age UK's website for guidance of DofA.

If you can get a mortgage on the property and continue to live there you will be able to use that £100k of equity as a deposit on another property. Depends on how much you earn and whether you could afford both mortgages.

It sounds like your parents are not in a position to give away £100k to anyone. They could take that equity and buy a property outright. Everything will sell in the current climate. Somewhere sensibly priced will sell quickly.

You know what they say about people who've been bailed out of the mire, don't you? That often they learn absolutely nothing and get themselves back into the mire tout suite.