Buying a house for a parent

joester13

Hi,

Any advice gladly received.

My wife and I have found ourselves in a slightly complicated house situation. We have relocated to Cornwall and are renting while looking for a house to buy. The plan was always for my mother-in-law to follow us down to Cornwall once she had sold her London property which she owns outright.

She has just found a house that is absolutely perfect for her and has made an offer. The major problem is the vendor has had another offer and although it is lower they are in a position to move at once, The vendor isn't willing to wait.

My wife and are very keen for her to get the house. We have cash in the bank from the sale of our previous property and could arrange a mortgage quickly so have offered to buy the house. She can buy it back from us with the proceeds of her london sale as soon as that happens

The obvious downside is that we will have to pay stamp duty twice (around £9K for each sale), pay a mortgage set up cost (£1K) and solicitors fees twice.

We would have to move in to the house for a short period as we couldn't rent and have the mortgage.

Although the house is great and worth a premium I wonder if there is a simpler solution? I am also worried about capital gains tax although hope that us living in the house should negate that.

Thanks in advance for any suggestions.

G_M

CGT is unlikely to be a problem due to the short period you will own it. The value is unlikely to go up (no 'capital gain'!) and even if it did you have an allowance of £10,600 per person.

I assume your MIL cannot get a mortgage (perhaps due to age/income)? That would allow her to buy it herself, then pay off the mortgage in a few months (!?) when she sells. She could raise the mortgage against her London property or the Cornwall one.

A 'bridging loan' is another option for her - but interest rates are considerably higher. Might be worth comparing the cost of this Vs the cost of Stamp Duty/solicitors x two?

How much are we talking about? You say "We have cash in the bank from the sale of our previous property ". Do you/she have other savings? Between you, how short of the asking price are you?

Back in the good old pre-crash days, I bought a house using credit cards (about £65K over 3 cards if I remember right.) All at 0% interest for a year. Like you I then sold another property and paid off the cards before the interest free period was up. Harder to do these days though....

joester13

Thanks for your advice and clearing up capital gains.

In terms of figures.

The purchase price of the new house is 280K
MIL's house is worth 460-490K
We have 105K in the bank and would need a 200K mortgage

You are correct in assuming MIL won't be able to get a mortgage due to age and low income.

We have looked a bridging loan but we all feel that is too risky. She would be paying around 3K a month and if it took any longer than 3 mnths to complete on her property it would cost more than the double stamp duty option.

Love the idea of doing it on % credit cards but we couldn't raise that much credit.

Yorkie1

Just to clarify, are you planning to buy it on a residential mortgage, move in until your MIL has sold her house, then she moves down, you pay off the mortgage and then buy somewhere else for yourselves?

If so, make sure you get a mortgage without any tie-ins or you'll be penalised heavily for early redemption.

Be aware, though, that if you plan to buy your own property before she sells up / redeems your mortgage, you could encounter difficulties. This might be because a) you would have a residential mortgage on the MIL's new house based on the fact you're living there - and you wouldn't be after you moved out therefore breaching your mortgage T&Cs, b) you'd have to be certain that you could get a second mortgage based on your existing income etc.