Buying house off Parents

choclover

Hi there,

Our parents bought us a house to live in as at the time we couldn't get a mortgage, our aim to is buy the house from them in the next few years for whatever amount we can get a mortgage for.

My question is how would this work and would we still need to put a deposit down?

Meeper

It would work just like a normal purchase in so much as there would be stamp duty payable, you would both need (separate) solicitors to handle the transaction, etc.

The difference here would be that you would probably be carrying out a sale at under value, which is to say that you will get a mortgage for some amount which will probably not be the full asking price, but the equity in the property will be gifted to you by your parents as the deposit. So, to illustrate, if the property is worth £150,000 and you can raise a £100,000 mortgage, the balance of £50,000 would be gifted from your parents to you in the form of the equity, although no money ever actually changes hands.

Your parents would need to state to the mortgage company and solicitors that the gifted amount is non-refundable, not a loan, and that they have no future interest or charge over the property.

You would also need to find a lender who was happy with lending on this basis, as some of them are not.

holly_hobby

Your parents will also be liable to a CGT calc (as the property has not been their main residence), which should be nil liability, IF they don't sell with a gain on the original purchase price, OR if they do sell it to you with a gain on top, that the added gain (split equally if the property is jointly held) is within each of their annual unused CGT allowance.

The gift is also classed as a PET, with exposure to IHT liability over the proceeding 7 yrs, IF upon 2nd spouse death their net estate is likely to exceed nil rate band (which is currently 650k in respect of transfer of unused allowance to surviving spouse), then depending upon their financial circumstances, you/they may wish to consider provision for this event.

I would guess that your parents aren't exposed to either of the above (so no liability to worry over) - but as no figures have been discussed just thought it was a point worth mentioning.

As Meeper says, a family gifted deposit is generally acceptable (with confirmation that it is a gift without reservation), spend an hour with a whole of market broker whom will not only source the most suitable lender for your needs, but should also support and guide you throughout the whole application process and beyond.

Hope this helps and good luck ...

Holly