Mortgage Advice

MuttonJeff

Hi all,

I am after a bit of advice. I took a 100% mortgage out with Scottish Widows, on a house which I bought for 125,000, just over 6 years ago. I am on their standard variable rate (about 2%) and am paying about £610 per month.

I am just about to sell this house for the same amount I paid for it and I have about £112,500 left on the mortgage.

The new house I am buying is worth about £150,000, however I am buying it off family for £80,000.

My plan is to port the £112,500 from my old house onto my new one and then get the £32,500 back from the current owner (leaving them the agreed £80,000). I will then put this £32,500 plus the £10,000 or so I make from the sale into an offset account to reduce my mortgage payments.

If I do this am I likely to remain on the SVR, or will they make me take a new product? Also is there anything else I need to consider with this kind of arrangement (i.e. buying from family at below market price)?

Thanks,

MJ

kingstreet

I think you're going to find one or two small problems with that plan.

1. On completion day, your current mortgage will be repaid from the sale proceeds, leaving only £12,500 left over, less selling costs.

Porting doesn't work the way you think. It is the right to transfer the rate from the old mortgage to a new one with the same lender, if you meet the lender's current lending criteria and loan to value. You cannot move a mortgage from one property to another.

2. Many lenders do not accept "vendor gifted deposit" business. Some will accept a "family purchase at undervalue" which is what you are describing, but I can't comment on SWB.

However, many lenders top-out on such cases at 80% loan to value, so you may find that if you are paying a "net" price of £80,000 they will only value it at a maximum of £100,000.

As things stand, you sell for £125k with £12,500 left over, less fees and costs. You get the new property for £80k, with an £80k mortgage if you put none of the £12,500 into the purchase.

I suggest you seek independent financial and legal advice to ascertain the most appropriate approach to this.

MuttonJeff

Thanks for the reply.

Like you say, I misunderstood how porting works. As an alternative would it be possible for the house to be gifted to me and then for me to remortgage the property for 80,000 at a LTV of about 55% (thus securing a decent rate)?

I will take some advice before arranging anything, but I hoped to have some kind of idea what I'm talking about before making any phone calls.

kingstreet

MuttonJeff wrote: »

As an alternative would it be possible for the house to be gifted to me and then for me to remortgage the property for 80,000 at a LTV of about 55% (thus securing a decent rate)?

Possibly. You'd then perhaps have to wait six months between change of ownership and remortgage, as many lenders operate a rule that they won't lend on a property until it's been in current ownership for six months, or longer.

A broker is probably the best route to finding a lender which doesn't use the "rule."

Depending on the age of the "donors", you may find issues such as deprivation of assets and inheritance tax liability if one of them died within seven years of the gift, subject to the total estate value.

Thrugelmir

MuttonJeff wrote: »

The new house I am buying is worth about £150,000, however I am buying it off family for £80,000.

Stamp duty will be payable on market value not the agreed sale value.

MuttonJeff

"Stamp duty will be payable on market value not the agreed sale value"

Ouch... did not know that... Any way around it. The house belongs to the mother in law who bought it for her mother about 30 years ago. The house is now unoccupied, and so we are buying it off her for cheap. If it were given to us and we either re-mortgaged (as above), or made monthly payments to her, would this avoid SD?

MuttonJeff

Actually, come to think of it, our house we are selling was valued at £140,000 (a little optimistically), however we are selling for £124,950 so the buyer avoids SD... What's going on here?

kingstreet

AIUI stamp duty is reflected in the actual consideration paid, not the valuation price. Worth checking with solicitor who actually collects the tax.