Transferring Mortgage and equity from father to son

Hairymonster

Hi All,

I was unable to get a mortgage when I moved into my flat 4.5 years ago due to a few factors such as my credit file, income etc. So my father paid a £40k deposit and bought a flat at £190k, on a £150k interest only mortgage, with the view to me taking over it when things improve.

I have vastly improved these areas and would like to try and now get a mortgage, in addition to this I got engaged. My other half has an excellent credit rating and is also in a reasonably paid job and is also keen for us to get a mortgage together.

The current market value is £186k so it has lost slightly but my father has said he quite happy for us as part of our wedding gift to have the equity on it. He hasn't looked into the best way of doing things but he thinks it is against the law to simply transfer the mortgage over to us; as obviously the bank has underwritten the mortgage and we(my fiancee and I) will have different eligibility and probably rates of interest with our situation.

Can anybody shed any light on what we have to do. I am gathering there may be several tax implications with this? the £36k equity is great for us to start on but we are not ready to move out right now would rather stay in the flat for a good couple of years yet. I'd also like to find the most efficient way of transferring over without loads of fees eating into the equity.

kingstreet

He needs to speak to his lender about a transfer of equity, but more likely, you need to raise a mortgage to purchase the property from him and you will be able to avoid neither fees, nor stamp duty.

Some lenders will allow you to take the reduction in the price as your deposit, but the property will have to "value-up" when the surveyor visits for that to work.

holly_hobby

Transfer of ownership

You would effectively purchasing the property from Dad, and unless you or he has the £ to repay his £150k os mge, you will need a mge to do that.

He is happy not to receive any monies from the pch, which means that you will be able to use this as your effective deposit.

You would essentially be purchasing under a Family Discounted Purchase/Family linked sale, where by the pch price note on the app is the market value ie £186k, with the mge required equal to the 150k Dad needs to redeem his o/s mge so (and assuming it values up at survey) this would be 150/186 = 80% ltv.

Whilst there a several lenders happy to process the app on this basis (always has to be an immediate relative), not all will work on the market value ratio, so I would engage a broker whom will sort this out no bother (assuming your income and status are suitable of course).

Taxes

SDLT wise, you'll pay it on the actual pch price (consideration), so it will be 1% on 150k ie - £1,500.

CGT - as there has been an effective loss (ensure that you have this all recorded with supporting documentation proving open market value etc), Dad won't be exposed to CGT, but he may wish to report the loss (via SA) to HMRC for future use re any CGT chargeable gain situations. NB - if he already reports by SA he has to report the transaction regardless.

IHT - no tax on you receiving the gift, but the gifted deposit for IHT purposes is a Potentially Exempt Transfer (PET), which becomes exempt if Dad survives for 7 yrs from the date of donation - which hopefully will be the case.

This point is relevant if Dads net estate on death is likely to exceed nil rate IHT band, which is currently 325k, or upto 650k if there is a deceased spouse, with some or all of their unused nil rate band available for tsf to Dads estate, which is done so on Dads death by his executor/administrators application to HRMC.

If Dads estate is unlikely to exceed this, even if he did pass in the next 7 yrs, then the gift being a PET is nothing to worry about, but mentioned here for thoroughness.

Hope this helps

Holly