Is it possible to buy a house off your parents with no mortgage?

SunFlower

Hi guys,

Here's the situation: my mum is moving to a different country. She has a house (freehold, mortgage paid) in this country. I don't have enough money for a big deposit, so I was wondering is there a way to buy a house off your parents without applying for a mortgage, whereby the buyer pays mortgage-style payments every month to the seller. I'm assuming that some form of legal agreement could be arranged between the two parties (if both are agreeable) that would preclude the need for a mortgage company to get involved. Has anyone done something similar/heard of it being done?

I'm trying to think of this from every angle: could something like PPI be purchased alongside such an agreement? Can anyone think of any other issues that may come up, and how to solve them?

It's all highly theoretical at this point: I'm just interested to see if it can be done.

Thanks in advance! :T

kingstreet

If she's giving you the property, you don't need any money. If you have to pay for it, you're going to have to find some way of raising the money aren't you? You're just paying in instalments, no lump sum?

SunFlower

kingstreet wrote: »

If she's giving you the property, you don't need any money. If you have to pay for it, you're going to have to find some way of raising the money aren't you? You're just paying in instalments, no lump sum?

I would not be given the property (although just out of interest, if that happened, what would be the tax/inheritance ramifications?): I would be paying for it. There would be no/a small lump sum. It would be paid in installments, rather like a traditional mortgage.

property.advert

Private mortgage with her having first charge over the property.

If gifted, then theoretical inheritance tax as a potentially exempt transfer http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm#4

spadoosh

I'd be more inclined to go along the lines of renting for a number of years and have the house signed over after an amount has been reached. To do what your suggesting in the OP i think your mother would have to agree to lend you the sum of the house (selling price) and then do it that way for tax reasons, i would assume that this isnt possible.

You can be given the property and your mother not have to pay (capital gains) tax if your mother meets certain criteria however it is likely you would be liable for CGT when you come to sell the property.

Might i ask, have you any siblings who could see this as you taking part of their inheritance. Is it likely to cause friction in the family, things like this normally do.

Link to CGT info http://www.hmrc.gov.uk/cgt/property/basics.htm#6

SunFlower

property.advert wrote: »

Private mortgage with her having first charge over the property.

If gifted, then theoretical inheritance tax as a potentially exempt transfer http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm#4

Thanks property.advert - that's very helpful.

I don't think my mum could afford to give the house away, hence me wanting to pay for it. How would one go about taking out a private mortgage? And since I'm a novice at this kind of thing, what's a 'first charge'? And how could it be separated from potential inheritance (I have a sibling and would not like it to get messy in the event that anything happens to my mum - she's still relatively young: here's hoping that's not for many a year)?

Thanks again.

kingstreet

I agree with p.a.

You won't be able to insure it, IMHO. An insurer would view the possibility of collusion between you as too great a moral risk. They insist on commercial agreements with recognised, authorised lenders.

SunFlower

spadoosh wrote: »

I'd be more inclined to go along the lines of renting for a number of years and have the house signed over after an amount has been reached. To do what your suggesting in the OP i think your mother would have to agree to lend you the sum of the house (selling price) and then do it that way for tax reasons, i would assume that this isnt possible.

This is the kind of thing I don't have a clue about...what tax reasons would make this not possible, please?

spadoosh wrote: »

You can be given the property and your mother not have to pay (capital gains) tax if your mother meets certain criteria however it is likely you would be liable for CGT when you come to sell the property.

Might i ask, have you any siblings who could see this as you taking part of their inheritance. Is it likely to cause friction in the family, things like this normally do.

Yes, I have a sibling, however, the house definitely will be sold regardless of who buys it. I have discussed with said sibling the opportunity of buying the house with me under this type of arrangement, but they have declined, saying they are looking to move in with their partner (fair enough). If this were possible and to go ahead, they would be told about it upfront, and that's one of the reasons I want a legal agreement so that there is no comeback later - paying the rent for X number of years then having the house signed over would potentially lead to trouble (although my sibling is a very reasonable sort, but you never know what happens when siblings partners get involved!) Any monies earned from this house would then be my mum's to do with as she pleases once they have been paid to her, and nobody could say that they are being deprived of any 'inheritance' as the property would have been bought as though on the market to any member of the public (apart from the mortgage interest, but the mortgage crowd would end up with that, not mum).

CLAPTON

the house can be transferred to your name so you will then 'own' it

you can get an agreement drawn up to say your mother lent you the money and how you will undertake to repay her
(is she going to charge you interest?)

you can arrange for your mother to have a first charge on the property (basically this stops you selling it without her permission or the debt being repaid)

this way there is no cgt complications; no insurance complications and no tax complications for you

you would probably need a solicitor to draw up the necessary arrangements

on another note have you agreed what would happen if you couldn't pay (i.e. lost your job, became sick etc)

and whether you mother would pay tax in whatever country she lives in depends upon the laws there.

holly_hobby

Mum would generally pay tax on any income generated in the country of origin, and the country of residence. This would be amended by election , if there is a Double Taxation Treaty in force between the 2.

Hope this helps

Holly

getmore4less

PPI on the debt is probably an issue.

Income protection can provide cover of the payments indirectly.

Check the tax position of the country of residence of receiving debt payments.

Renting and/or paying interest will both incure income tax assesments for mum.

Buying also may incure SDLT.

CGT is a red herring as long as you live there and you mum does before she sell.

IHT issues are normal since just the debt belongs to the estate as cash no need to worry about PETS.