Buying house from Parent - Help!

grantd

Hello everyone, I want to give you all information about my situation and see what you can tell me...here it is:

My Dad wants me to buy his house because he is planning to do some travelling. I'm an only child.

> The house is worth approx. £100k based on the selling price of houses nearby.
> I have £5k in cash.
> I have a existing mortgage of £75k on my house worth £105k with HSBC, which I'm keeping.
> My Dad wants me to give him £70k for the house. He has a mortgage of £50k.
> After I buy the house I'm planning on renovating and renting out.
> I earn £35k / year and have £10k in current credit card / loan liabilities. I don't run my current account particularly well (the odd returned DD every other month).

So how best should I go about purchasing the house? Here is what I'd like to do...

Buy the house valued at £100k, get a mortgage for £65k, give my Dad that plus the £5k. Reasons for wanting to do that are - with most house buyer's obsessed with Zoopla it would be damaging to have the house bought for £70k on record, with the house valued at its normal fair price the mortgage amount would be low and therefore chance of a good rate increased, plus increased chances of accepting, I don't have the money to buy at £70k and put in a 15% deposit.

My friend told me about my Dad gifting me part of the deposit? Help and advice would be very welcome. I ideally want to do what I've just described as close as possible - can I do that? Which bank is to do that with? Should I go to the broker?

Thanks again

Simon_gloster

Your intention is to rent it out do source a buy to let. Unsure on the legalities if a discounted purchase for buy to lets. The fact you have a residential mortgage will exclude you from main residence applications.

holly_hobby

What you are proposing is referred to as a Family Discounted Purchase.

This is where officially the property has a market value of 1 figure (in this case 100k .. and assuming the surveyor agrees), but your father has agreed to sell to you at a discounted fee of 65k - him effectively giving you the difference of 35k for your mge deposit, which is what it will effectively act as. This arrangement is only permitted for family connected purchases, and not for un-connected parties.

So your mge application shows pch price of 100k and mge reqd of 65k - but you declare at OUTSET that this is a family discounted arrangement (an adviser will find this a simple placement - dsubject of course to your income being sufficient to service this and your existing mge commitment), this will also be assessed under 2nd property criteria .

Haven't discussed BTL as you don't intend to let, additionally lenders whom will accept a discountd pch price are limited (although there are a couple).

So the pch and mge isn't necessarily an issue - but how you will be managing the property may well be.

This is because you say that following pch you will remain in your own home, whilst leaving dads ex home empty whilst you re-furb it - which may well cause issues with the lender re-unoccupancy and bldings ins issues. (although there are providers who offer ins for unoccupied properties - it'll be whether the lender is happy with this).

Upon sale of the proeprty its important to note that you'll be exposed to income tax on the net gain, not CGT, this is because you have pchd the property with the sole intention to upgrade and sell to immediately derive a profit from it.

You really need to sit down with an experienced adviser whom will discuss the above with you in more detail.

Hope this helps

Holly

Simon_gloster

I think bullet point 5 H said renovate and then rent it out which is where I think providers become restricted......or have I read it wrong?

holly_hobby

No, I haven't discussed renting either pre or post renovation.

Commented on the fact that as there is no intention and won't be let post completion any BTL mge application is obv out.

If they do intend to let, then a BTL mge (poss light refurb with TMW) is reqd and there will be restriction of lenders due to gifted deposit.

H x

wannahouse

holly_hobby wrote: »

No, I haven't discussed renting either pre or post renovation.

Commented on the fact that as there is no intention and won't be let post completion any BTL mge application is obv out.

If they do intend to let, then a BTL mge (poss light refurb with TMW) is reqd and there will be restriction of lenders due to gifted deposit.

H x

grantd did say above he wanted to let it out : "After I buy the house I'm planning on renovating and renting out."

holly_hobby

wannahouse wrote: »

grantd did say above he wanted to let it out : "After I buy the house I'm planning on renovating and renting out."

You're quite right - don't know why I thought he said he was refurbing and selling on ... (blonde moment !)

Ignore 1st para and refer to 2nd para of above post ...

"If they do intend to let, then a BTL mge (poss light refurb with TMW) is reqd and there will be restriction of lenders due to gifted deposit".

Retaining and renting, will also affect the tax on disposal I discussed, which IF rented out, will subsequently be CGT instead of IT relevant to a property developer situ. To which (documented) improvement costs may be applied to the gross gain for CGT, where as on going essential maintenance is applicable against the rental income for IT purposes.

Hope this helps

Holly