Mortgage conundrum... trying to help my dad!!!

GreyMan

Okay... I've got my solicitor, accountant and mortgage advisor working on this one, but we seem to be getting no-where fast. If anyone can help it would be very much appreciated!

History

Around 7 years ago my dad lost his credit rating as he failed to pay off his overdraft as all his money was tied up in his property. In order to free up some of his equity and to move his life forwards he bought a new property with the help of his partner. She used his £100k and took out a mortgage on his behalf; there is no legal proof or recognition of this.

She is not married to my dad and has never lived in his current property. She does not own another property, choosing to rent instead.

Current Situation

That relationship is less than ideal so, as his son and in a financial state capable of helping out, I'd like to take on his mortgage so he can remain living in his house.

It's current market value is approx. £175k, and the mortgage is for £75k.

My dad is fast approaching 60 and is still without any sort of useful credit rating.

Ideal End-state

What I would like to do is transfer the mortgage from my dad's partner to myself - with this reflected in the deeds, and release approx. £25k of the equity so my dad can make some necessary improvements to the property.

In doing all of this I would like to avoid paying any stamp duty, keep legal fees to a minimum, and ensure that the value of the property is stated as approx. £175k in order to avoid a substantial Capital Gains Tax liability if it were to be sold in the future.

Hurdles so far...

• Mortgage lenders won't recognise any money gifted to me from my dad's partner (i.e. the obvious £100k under value if I were to buy the property from her for £75k), meaning the maximum amount I could be lent would be just 90% of the £75k.
• I don't have the money to buy it for £175k, and even if I did I wouldn't wish to risk giving my dad's partner £100k during the purchase, despite it being understood that she would then give it straight back. Not to mention then having to pay stamp duty in addition to all the standard legal fees, etc.
• If I accepted that no money could be released and went ahead with buying it for £75k my dad's £100k would immediately be subject to Capital Gains Tax if he (I) ever wanted to sell it.
• There (apparently) is no way of my dad being recognised for his capital in the property with his partner because the current mortgage lender wouldn't allow him to be placed on the deeds due to his poor (non-existent) credit rating. This rules out the possibility of me buying out his partner's share of the property - which was highlighted as a possible way forward at one point.

I'm sure there are plenty more considerations but that is about as far as my search has got me to date...

What I find so difficult to believe is that there is 1) no way for my dad's share of the money in the property to be recognised in it's current state; and 2), that there is no way for me to legitimately take on a mortgage on my father's behalf when I am more than financially capable to do so.

Please, please help... I'm running out of options and my father's stress levels are going through the (leaky!) roof!

Conrad

GreyMan wrote: »

She used his £100k and took out a mortgage on his behalf; there is no legal proof or recognition of this.

The original Solicitor MUST have had proof of deposit. Presumably your Father transfered his £100k through a Bank to her?

Are you saying he justed made this transfer like a gift with no paperwork setting out it was his money?

Conrad

GreyMan wrote: »

• If I accepted that no money could be released and went ahead with buying it for £75k my dad's £100k would immediately be subject to Capital Gains Tax if he (I) ever wanted to sell it.

'If' you ever want to sell it. Then don't sell it. Relatively few people on the Earth will be gifted £100k on the death of a Father, so count your lucky stars I reckon.

Dave_Ham

Just to summarise this quickly, there is not going to be a solution that meets your expectations/requirements.

Only way would be for you to be added to the existing mortgage, becoming financially associated with your Dad's "friend" and then remortgaging off in sole name.

This is a long process (6 months +) and this would open loads of other considerations up.

No lender at all, will look at this money being gifted to you. It is also likely as Conrad suggested that your Dad waived any rights on the deposit, as likely to have declared it was a £100k gift..

Sorry - good luck

GreyMan

I'll have to confirm with my dad about the bank transfer - he's sure that it would be quite easy to prove he supplied the money; the issue lies with the fact that as far as the mortgage lenders are concerned it's hers as she's the sole name on the deeds.

As for a free £100k... yes, I agree that I would be very lucky indeed; but the issue will be if my dad gets ill or just wants/needs to sell in the future. I would be more comfortable if his money was recognised as being his so he can do with it as he pleases rather than it being stuck in, effectively, someone else's property.

GreyMan

Dave,

Thanks for that...

The option to become a joint owner with her and then buy her out at a later date was raised as a potential way forward - I was just interested to see if there were any other ways around this. My mortgage advisor stated that because my dad is living in the property it should also be placed on a buy to let mortgage, is that correct? For some reason I thought that you could get away with close family just living in your residence (admitedly he would be covering the interest only mortgage repayments but that would be it)?

Dave_Ham

Would need to know the absolute details, as mortgages for a dependent family member are reducing in their numbers and are very specific.

I think it is unlikely, rather than impossible to get this.

Your broker appears to be assessing the right angles and clearly you have a good level of understanding so with a bit of compromise I am confident you will find a solution.

All the best

holly_hobby

There should have been a trust deed set up with the Sol - as it stands, she could just sell the property, pocket the proceeds and sail off into the sunset with George Clooney .... as she is the legal and beneficial owner ... in my opinion he's had some pretty shoddy advice from his Sol allowing him to even consider this, never mind go through with it ...

Anyhoo ... we want her out the pic to protect Dad, she acknowledges that the 100k within the property value, doesn't morally belong to her, so why can't you just pch the property from her for whatever the os mge amount (in her name) is ? e.g. 75k

No undervalue with gifted deposits etc, just a straight forward plain sale at 75k. You would then source a mge on a property pch price of 75K, with the appropriate deposit (assuming your income and status etc is sufficient and acceptable) - the valuer will no doubt scratch his head when he attends the valuation !

Although she is effectively agreeing a pch price vastly under what would be going market value, and it may well raise an eyebrow, the bottom line is that it is her choice to sell it for whatever sum she wants - obv this wil only work if you have capital to fund the pch inc deposit.

I would much prefer this route, than the back and forth TOEs and resulting legal costs and fees you are considering, which involve you being acceptable and added on to the mge in any event .... with the above straight pch suggestion cutting out all that hokey cokey !

As regards type of mge to be sourced - if there is no rental payment from Dad, essentially any mge app in your name would be a "mge for a dependant" but Dave says these are becoming rare .... in that event you could consider a regulated BTL (althoguh there is actually no rental income being exchanged). Obv, you will need to assess whether the affordabiity on given rates is manageable for you (not withstanding it meeting lending criteria), and affordability should be assessed as a 2nd mge under its FSA regulation.

Moving to releasing equity, on either a dependants or regulated BTL mge, this would have to be done at least 6 mths after you take ownership, and again affordability under the arrangement will be the issue as to whether its successful.

Dad will need to sign an consent to vacate/AST (protecting the lenders rights to sale/possess on default), and not sure if the lender would require vacant possession (as your Dad already resides there, its a bit like a sitting tenant), your Sol & Broker should check that out as part of the process.

Hope this helps

Holly

GreyMan

Dave... thank you.

GreyMan

Thank you Holly, there's a lot to think about and discuss with my dad, but it's good to get your take on it.

By purchasing at £75k I'm just concerned (given my limited knowledge of CGT) that at my tax bracket my dad stands to lose 40% of his life savings if he ever wants to sell the place - which may happen eventually as it's in a very rural and secluded area.

holly_hobby

Dad can't sell it, at the moment his parner owns it, and the idea is for you to own it.

So if you sell it on his behalf, yes you will be exposed to CGT - however CGT for property is a little different.

I assume from you quoting 40% that you are a higher rate tax payer, in that event, any net gain (which is less losses for the tax yr, costs of acquistion and disposal, and any prof fees), is 28% (18% for basic rate tax payers).

Does that help any ?

Holly