Implications of buying house undervalue from family

p00hsticks

ccmccm wrote: »

She's currently on an interest-only mortgage and has basically no equity in the house. It was a new build bought on a £300k mortgage 10 years ago. Apparently it is valued at roughly £600k now.

Am I missing something here ?

Do you really mean that she has no equity in the house - i.e. that she owes as much as the property is currently worth ?
If she has now added another £300k or so of secured debt to her original £300k mortgage, then any plan she has to sell for £400k is unworkable, as she'll need to pay back the secured loans/mortgages on the sale and won't be able to afford to do so.

Hopefully what you meant to say is that she just hasn't paid any capital off the original £300k mortgage - but has equity in the house due to the subsequent rise in value.

kingstreet

There are several problems in this plan that I can see;-

- you aren't a family member so won't be permitted on the mortgage

- on a sale at undervalue the vendor cannot rent or reside in property

- potential Insolvency Act issues if she has debt problems or forthcoming bankruptcy

- stamp duty is payable at the gross value, so a bill of £24k applies.

Re-reading your opening post two or three times, I'm wondering if you actually mean a purchase at undervalue? Are you talking about using a part of the value of the property as your deposit, or simply want to buy it from her at a lower price, paying your own deposit?

property.advert

Thrugelmir wrote: »

She has the assets. Sale at undervalue.

Don't become involved.

I agree but a sale at less than market value cannot be illegal as there are loads of people who will buy your property tomorrow, but perhaps for only 70% of its value.

Not so different here is it ?

Thrugelmir

property.advert wrote: »

I agree but a sale at less than market value cannot be illegal as there are loads of people who will buy your property tomorrow, but perhaps for only 70% of its value.

Not so different here is it ?

The creditors in the event of bankruptcy will seek recovery of their losses by applying to a court to have the sale of the property overturned. Win hands down. Other parties would be viewed as being in collusion and therefore may find themselves subject to a severe black mark on their credit records at the very least. Also suffer the costs of the court case and forced sale of the property.

ccmccm

p00hsticks wrote: »

Hopefully what you meant to say is that she just hasn't paid any capital off the original £300k mortgage - but has equity in the house due to the subsequent rise in value.

Yes, sorry that is what I meant. They bought it for 300k and haven't paid off any of the capital, but potentially have equity if the house is worth 600k.

kingstreet wrote: »

There are several problems in this plan that I can see;-

- you aren't a family member so won't be permitted on the mortgage

- on a sale at undervalue the vendor cannot rent or reside in property

- potential Insolvency Act issues if she has debt problems or forthcoming bankruptcy

- stamp duty is payable at the gross value, so a bill of £24k applies.

Re-reading your opening post two or three times, I'm wondering if you actually mean a purchase at undervalue? Are you talking about using a part of the value of the property as your deposit, or simply want to buy it from her at a lower price, paying your own deposit?

Yes I think I mean purchase at undervalue. Between myself and any of the others coming up with a deposit and buying the house for 400k from the mum.

I was unaware that if she sells to us at undervalue she cannot then rent back, but I was prepared for their being issues with insolvency so that's not wholly unexpected.

What's the issue with not being a family member? If you can buy a house with a partner who at that point isn't part of your family, why would I not be able to buy with 2 members of their family?

Thanks for the responses guys. It's pretty much what I expected but thought I would do some preliminary research. Much appreciated.

somethingcorporate

I think it would be harshly frowned upon her giving you the equity in the house (by selling at considerably less than it is worth) and then declaring herself bankrupt - I am sure this would be overturned by the creditors that she is trying to shaft which would pull all of you into her debt issues.

The only solution if you all cannot afford to live there is to sell, settle the debts and start again.

This is a financial and legal minefield with very few upsides I can see - I would steer well clear if I were you.

kingstreet

ccmccm wrote: »

What's the issue with not being a family member? If you can buy a house with a partner who at that point isn't part of your family, why would I not be able to buy with 2 members of their family?

The problem is you aren't a family member of the person who would be selling to you at undervalue. I can't find much online, but this is from the criteria of Co-oP/Britannia group member Platform Homeloans;-

Purchase at undervalue

The maximum LTV will be based on property value.

Only considered when:

Property is being purchased from a family member – this can be spouse, same sex partner, parent, sibling child, grandparents, aunts and uncles, nephews and nieces or where there is an obvious family connection which can be proved

The maximum loan is limited to the lower of either 100% of the contractual purchase price or 75% LTV based on the property value.

The vendor must not reside (either as an occupier or tenant).

Platform will require proof that the family member’s mortgage is up to date from the existing lender

I don't believe criteria will vary much from lender to lender on this issue.

loubel

Why doesn't mum just sell now, pay off all her debts and use her £300K of equity to buy herself a nice but smaller house mortgage free?

I don't understand what benefit there is supposed to be for mum if she gifts the equity away?

kingstreet

loubel wrote: »

Why doesn't mum just sell now, pay off all her debts and use her £300K of equity to buy herself a nice but smaller house mortgage free?

I don't understand what benefit there is supposed to be for mum if she gifts the equity away?

The idea is, the mother divests herself of all assets, then declares bankruptcy owning nothing, to avoid repaying the debt. Then in a year or two the accommodating family members give her back her £300k.

Simples.

loubel

Ah, I had missed that bit.

Don't get involved OP!