Legal implications of buying parents home (unusual situation)

Lionel_Thinkbag

Apologies in advance as this will probably be a bit long and rambling.

My parents house was bought in 1983 for 9k, a bungalow - essentially a prefab - and over the years they have extended and rebuilt parts of it. The exterior is now entirely brick, however the roof isn't tiled it's a covered with heavy duty felt.. It is water tight and has central heating. As the extensions have been done sporadically over a 30 year period and largely DIY jobs it has a rather unusual layout. :rotfl:

Furthermore my parents have around 38k left on the mortgage - a result of multiple remortaging to finance the building work. They are both due to retire this year. Money is going to be very tight for them. My brother works at a supermarket and brings in around £500 a month and in addition to their pensions (don't know the exact amount but I was given the impression it wasn't much) Also I should mention my brother has Aspergers and so will probably be living with my parents for the foreseeable future.

Around 10 years ago they had the house valued, and the EA basically said because the house was so unusual, a prospective buyer would want to knock down and rebuild and so they valued the land alone at 95k. It's around 1/2 an acre in quite a desireable semi-rural area.

My parents know we are househunting and are continually saying we should move in with them, which is a very kind offer but it would not be a practical situation in the long term. They have even gone as far to suggest that they buy a static caravan and live in that as a granny flat, and we would live in the house! I'm not convinced that would be legal or even healthy for them (my experience of statics are cold and draughty holidays in Wales, so maybe things have improved since then!)

It occured to me that we could get a mortgage through the Buildstore, and that we could either do a full rebuild or at least reconfigure and put a proper roof on. Now, assuming Buildstore approved us and it was financially do-able, what about from a legal standpoint?

This was what I was thinking:

1) My parents apply for planning permsission to build a 2 bed granny flat in the garden. (Mum has already spoken to the planners about this and they were generally positive - they seem to be keen on granny flats in this area) Lets assume for the sake of arguement that permission is granted.

2) We buy my parents house for 70k, with a buildstore renovation mortgage that would give us 40k to do the building work required (I realise this might be a tight budget and we would have to seriously look into what the various options would cost) again lets assume permission is granted.

3) My parents would then be able to pay off the remaining 38k, and have 32k to spend on the granny flat. They would live with us while that was being built.

4) In the meantime the house is livable, has a useable kitchen and bathroom. When necessary we would move in with my uncle while work was being completed on the house.

As I said before, I am aware that the finances may be tight, but I am more worried about any potential legal implications? I don't want any nasty surprises.

Phew, thanks for reading!

Annisele

I'm no expert, but it sounds a very complicated plan. Maybe worth speaking to a broker about it?

Lionel_Thinkbag wrote: »

This was what I was thinking:

1) My parents apply for planning permsission to build a 2 bed granny flat in the garden. (Mum has already spoken to the planners about this and they were generally positive - they seem to be keen on granny flats in this area) Lets assume for the sake of arguement that permission is granted.

I don't see any major problems with this bit.

2) We buy my parents house for 70k, with a buildstore renovation mortgage that would give us 40k to do the building work required (I realise this might be a tight budget and we would have to seriously look into what the various options would cost) again lets assume permission is granted.

Hmm. How did you come to the figure of £70k? Presumably the house/plot is worth more than that, so your parents would be selling to you at an undervalue.

That potentially has a few implications. If you google "deprivation of capital", you'll find a fair few negatives from your parents' perspective (briefly, for benefits or care purposes they might be treated as having more money than they've actually got).

For you, it might cause a problem with your mortgage. Generally lenders don't like gifted deposits to come from people who will still be living in the property, as it can make repossession difficult to impossible.

3) My parents would then be able to pay off the remaining 38k, and have 32k to spend on the granny flat. They would live with us while that was being built.

Who would own the granny flat? If you, then your parents spending £38k on it puts them at some risk. If them, you'd probably need to split the title to the property (so you own the main house and they own the granny flat) - but given the planning situation that might not be possible.

4) In the meantime the house is livable, has a useable kitchen and bathroom. When necessary we would move in with my uncle while work was being completed on the house.

I don't see a major problem with this bit either.

lincroft1710

10 years ago I got a quote for building a small 1 bed bungalow in my garden, £60K! You would be looking at probably £80K absolute minimum.

Rather than a static caravan, what about a proper park home which is designed, constructed and insulated to cope with year round living.

Lionel_Thinkbag

Thanks for your replies.

Hmm. How did you come to the figure of £70k? Presumably the house/plot is worth more than that, so your parents would be selling to you at an undervalue.

Tbh, 70k was based on the fact we currently have an AIP for 111k mortgage, so I'm being very presumptuous in thinking buildstore would give us similar. 70K of that allows us to buy the house, allowing my parents to pay off the remaining 38k and leaving enough left over (I hope!) for the granny annexe. The remaining 40k would be for the building work.

When last the land was valued it was 95k, and presumably it would be more than that now, so yes it would be sold at an undervalue.

I found this thread which seems relevant, but obviously I'd have to seek the advice of a solicitor https://forums.moneysavingexpert.com/discussion/2444165

That potentially has a few implications. If you google "deprivation of capital", you'll find a fair few negatives from your parents' perspective (briefly, for benefits or care purposes they might be treated as having more money than they've actually got).

Good point, we'll have to look into that in more detail. I did see an episode of My Flat Pack Home in which a man inherited/bought his mothers house and then they built a granny flat within the garden, a similar situation to ours - except we'd be wanting to work on the house itself. I'll have to re watch that particular episode.

For you, it might cause a problem with your mortgage. Generally lenders don't like gifted deposits to come from people who will still be living in the property, as it can make repossession difficult to impossible.

I'm not sure I understand, we're saving up our own deposit. There would be no money coming from my parents. Granted they would be paying for the granny annexe, but that would be separate from our mortgage for the house.

lincroft1710 wrote: »

10 years ago I got a quote for building a small 1 bed bungalow in my garden, £60K! You would be looking at probably £80K absolute minimum.

Rather than a static caravan, what about a proper park home which is designed, constructed and insulated to cope with year round living.

Sorry if I wasn't clear, it was my dad suggesting static caravans, if we were to go through with this we would definitely be building a purpose built granny annexe.;)

Another point: We want our brother to always have somewhere to live, for the forseeable future this wouldn't be a problem, but obviously if at some point we wanted/needed to sell up we wouldn't be able to with my brother still occupying the granny annexe. Because of his condition it would distress him to move. Would it be possible to have the granny annexe designated as an entirely separate residence? (we have a fairly wide driveway and so access would not be a problem)

Of course right now this is all hypothetical, we're definitely going to have to think this one over. In all likelihood we'll probably be best off saving a bigger deposit up over the next few years to give us a better safety net, if theres one thing I know about building work is that you can take your initial costs/time and add half again!

Annisele

Lionel_Thinkbag wrote: »

I'm not sure I understand, we're saving up our own deposit. There would be no money coming from my parents.

If you're buying something worth £95k+ for £70k, then there's at least £25k coming from your parents. It may be gifted equity rather than cash, but lenders still won't like your parents giving you money then staying in the property.

holly_hobby

The annex or whatever is attached to the house or be built, and to be considered a stand alone property, will need to have its own separate title deed (apart from planning permission in place of course), and fully self contained, with its own private front door/entrance (ie access not through the main house) with its own utilities supply (gas, water, elec), ie if an annex, the svcs are not sparred off as an extension from the main house, with only 1 billing account.

Parents can not financially contribute to the purchase (which will provide beneficial ownership rights), unless they become party to the mortgage (which may have its own issues with the SB mge being sought, with the max term restricted by their ages and time remaining until the oldest reaches 75)

Sorry if I've missed anything, I've briefly scanned the posts, so apologies if so.

Hope this helps

Holly

Lionel_Thinkbag

Thanks for your replies guys.

Annisele wrote: »

If you're buying something worth £95k+ for £70k, then there's at least £25k coming from your parents. It may be gifted equity rather than cash, but lenders still won't like your parents giving you money then staying in the property.

Despite the mortgage totalling 110 k? I mean, if the mortgage company did want to reposess then it would just be hard cheese for all of us right? I don't see how my parents would have any more rights than if we had a lodger or something. Or if we just moved in with them and then they couldn't pay the mortgage we'd all just be turfed out. Not saying you're wrong, it just seems a bit odd to me. But then that's property law for you.

holly_hobby wrote: »

The annex or whatever is attached to the house or be built, and to be considered a stand alone property, will need to have its own separate title deed (apart from planning permission in place of course), and fully self contained, with its own private front door/entrance (ie access not through the main house) with its own utilities supply (gas, water, elec), ie if an annex, the svcs are not sparred off as an extension from the main house, with only 1 billing account.

The annexe would be a separate building, but I think we will probably run into problems there, as the planners said granny annexes were OK so long as they were running off the same services. I doubt we'd be able to separate it without considerable expense. It's not the end of the world if we can't separate the two, but it would be down to my brother if he wanted to move or not, it's highly unlikely that we'd want to move, but I was thinking of years down the line if/when my husband and I snuff it, and our daughter can't sell the house if my brother is still living in the annexe.

Parents can not financially contribute to the purchase (which will provide beneficial ownership rights), unless they become party to the mortgage (which may have its own issues with the SB mge being sought, with the max term restricted by their ages and time remaining until the oldest reaches 75)

You mean contribute to the purchase of the granny annexe?

Obviously we're going to have to talk to the Buildstore/solicitors about all this, I'm hoping its something they've dealt with before! Thanks again for your help guys.

Annisele

Lionel_Thinkbag wrote: »

Despite the mortgage totalling 110 k? I mean, if the mortgage company did want to reposess then it would just be hard cheese for all of us right? I don't see how my parents would have any more rights than if we had a lodger or something. Or if we just moved in with them and then they couldn't pay the mortgage we'd all just be turfed out. Not saying you're wrong, it just seems a bit odd to me. But then that's property law for you.

I'm not a lawyer - and I might well be wrong - but I believe the problem is about whether the equity your parents gifted you was actually a gift.

If it was 100% a gift, and you hadn't coerced your parents in any way, and the lender could prove that to a court, all would be well. But if your parents had given you the equity in exchange for the right to live in the house until their death, their rights to live in the house might come before the lender's right to repossess.

Would you parents gift you the equity if you wouldn't let them stay in the house/annexe? If not, it's not a true gift.

Edit: That particular problem goes away if your parents are party to the mortgage - but as Holly says, that might bring a new problem.

Poppy9

Not sure of parents ages but you could

• Buy your parents home outright with £110k mortgate
• They then pay off their mortgage and have have £70k cash
• They then use this money to pay for an extension on existing house i.e. granny annexe
• They could also use some of the money to replace the roof on main house

You would then own the house but they would be paying to renovate and extend.

In return you allow them to live rent free for the rest of their lives and commit to provide a home for your brother.

Not sure how feasible and legal this is!

Lionel_Thinkbag

Annisele wrote: »

Would you parents gift you the equity if you wouldn't let them stay in the house/annexe? If not, it's not a true gift.

Thats a good question, they would if they could afford it, but they can't. The 32k theyd be left with wouldnt buy anything around here, and then theres my brother to consider too. To be honest my parents are more concerned about him than themselves, personally I'd prefer to look after them in their old age than have them go to a care home.

This whole idea did originate from my parents, and we've been resisting because up until recently we were unaware of Buildstore. We didn't want to live in the house when it needed so much work.

Now if 25k is too far below market value, where is the threshold where it would be acceptable? Would a 5k or 10k discount be too much? It's just so confusing as houses (normal houses!) sell for all sorts of prices, I'm seeing houses on rightmove that have dropped the asking price multiple times in a matter of months, presumably they were valued at X amount, and then the sellers have decided to drop the price - sometimes by 30 - 40k. I suppose what I'm saying is how long is a 'valuation' good for?

Anyway I think our best bet would be to continue saving for the time being, and then we could be in a position to offer more.

Seems a shame that something mutally beneficial to both parties has to be so difficult. I worry that they're not going to be able to pay off the mortgage, my mother is 63 and retires at the end of the month, my father is semi retired does private tuition sporadically. They need a new car, and my dad is talking about getting some sort of bike/rickshaw to go the local shops! (yeah he's a little eccentric) They need a car in that location.

Anyway enough of my whinging. Thanks again

Poppy9

It sounds like your parents want you to have the house to give security to your brother. You seem happy about the caring aspect so why not investigate if you can buy house from them and they use the capital they have left after paying off mortgage (and buying car) to pay for refurb. You would 100% own the house.