Best way to sell home to my child?

Mr_F_2

I'm a newbie to the forum but regular visitor to the website - hello to you all. My wife and I want to sell our home to our daughter but it's a little complicated and we would like to ask for advise, after much 'googling' we are becoming increasingly confused.

We have a home with an estimated value of £170K, and a mortgage of £60K with 8 years to run. We want to move home by purchasing a house for £300K with £100K interest only mortgage and £200K deposit.

We wish to sell our current home to our daughter for £60K in order to help her onto the property ladder and allow us to proceed on the next purchase. The complication is that when our daughter sells the house we want to take a further 90K from the proceeds.

As an example. If, in a few years, our daughter sells for £180K, she gains £30K as she will have paid us a total of £150K.

We have no real idea of how to make the above work and be sure we don't do anything illegal or fall foul of the taxman (CGT/IHT etc)?

The above is just our thoughts of how we could help our daughter and allow us to proceed on a property purchase. Any other ideas or feedback on the above would be much appreciated.

Many thanks

CLAPTON

presumably

-you earn enough to get a mortgage of 200k

it unlikely that you will get an interest only mortgage without some form of plan to pay it off
why do you want an interest only mortgage?


presumably your daughter earns enough to get a 60k mortgage?

it's unlikely however that any mortgage company will lend to your daughter if you want to retain an interest of 90k.

you could both of course get a joint mortgage but this might compromise your ability to get sufficient mortgage on your new house
this would also mean there would be a cgt liability when the house is sold

you could of course simply trust your daughter; unwise if the money is important to you.

BitterAndTwisted

I'm no expert in complicated arrangements such as this but I suspect the only way of ensuring that you do achieve the balance of the property's true value upon a sale is for you and your daughter to arrange for a joint-mortgage. Once she's bought it from you for £60k there may be no guaranteed method of achieving that other £90k apart from trust and mutual respect. What may happen if you want or need that £90k and she's unwilling or unable to sell? It might be time to think of all the possible outcomes and problems and their solutions before you embark on this.

Have you consulted an independent mortgage advisor or solicitor about this or other possiible scenarios?

I don't know you or your daughter obviously but sometimes plans such as this can go awry. Very seriously awry. And totally destroy relationships.

Beckyy

Would it be possble to sell your current home, and gift your daughter enough money to put a depoit on a house of her own - allowing you take out your mortgage for your new home and your daughter to get on the property ladder.

pauletruth

sounds complicated. and were it is it tends to cause problems. speak to a lawyer but think can your daughter really afford your house.

Mr_F_2

Hi again, thanks for all the replies, much appreciated.

In response to some of the questions:
We have not yet met with a mortgage advisor but intend to do so.
Most of my our concerns so far have been around what could go wrong relationship wise, but our relationship is rock solid so for this discussion we have to assume it will stay that way.
Yes we can afford to get a mortgage, could do so for the full £300k if we wanted to (but don't).
Our daughter could easily afford our house at £60K - but probably not at £150K.

In summary of what we want to do:
Sell our house as quickly as possible but not by the traditional route (for speed reasons).
Help our daughter onto the property ladder in some way.
If we sold our house to our daughter we would want £150K - eventually.
Buy a new house for £300K with a mortgage of £100K (we do have means of paying of the £100K if we took an interest only mortgage).

By far the easy route for would be to purchase the new house on a second mortgage and sell the current house in the traditional manner - this is possible but does not help our daugter we don't really want to two mortgages running in parallel.

Thanks

pauletruth

sadly unless your willing to gift some of the value then your not really helping your daughter much. its not likely that a loan company would be happy with you having a 90k claim on the house. of the 60k what deposit has your daughter. you all need to work out is this for the best for all of you. lets imagine your daughter has been there for ten years and has a growing family what happens if you need the money. if you can afford it gift her a share and get her to get a reasonable loan to cover the remainder.

xylophone

If your daughter can only afford a mortgage for £60000 then it seems to me that you and your spouse will need to become tenants-in- common with her of your existing house, owning the property in proportion to the equity owned.

You will then be able to use the money as a deposit on your new property.

Don't forget the cgt implications for you and your spouse on sale.

paddedjohn

if the house is valued at 170k and your daughter gets a mortgage for 60k then that leaves 110k equity in the house, can you get a second charge on the property for the 90k?

paddedjohn

if you already have 200k deposit to buy your new property then can you not remortgage your house for another 100k buy the new property outright and then rent the house to your daughter. using her rent towards the mortgage

Annisele

I read it as the OP currently having £140k in cash towards his new house - I think he's hoping the other £60k will come from his daughter's mortgage.

Another way to do things would be:
Sell House 1 on the open market - assume OP gets £100k in his hands after paying off the mortgage/fees etc
So, now he has £240k in cash, and he wants to buy a £300k house
Now use only £200k as the deposit for new house, and take a £100k mortgage
OP now has £30k ish cash left over (after paying stamp duty etc)
Now give £20k - £30k cash as a gift to daughter for her to use as a deposit on a property she wants to buy.

It sounds as though OP was happy to gift £20k to his daughter anyway, as he was talking about selling a £170k property to her for £60k plus £90k, with the £90k to be repaid (in effect) with an interest free loan. If he gives her that £20k now as cash, she can use it to buy whichever property she chooses - which wouldn't necessarily be her parents' house.

Edit: I appreciate that that doesn't solve the "sell first house quickly" problem - but I'm not convinced that OP's solution does that either. If he needs to protect his £90k (not just from daughter, but from daughter's potential future partner or creditors) then he's likely going to need either a charge on the house or a formal loan agreement, and either of those will mess with the amount a lender will lend to the daughter.