Relative living in house after gifting equity

rachel23

Can anyone please tell me if the mortgage company will have an issue with my MIL continuing to live in the property (together with us) after transferring all the equity to us. The equity will form part of our "deposit" together with £15k cash which we have saved ourselves.

holly_hobby

Yes they will - as MIL remaining resident post completion, will prejudice any future possession order sought by the lender and prevent vacant possession.

There may also be deprivation of asset issues, if MIL or her reps later seek state funded long term care assistance.

Plus IHT probs if MILs net estate on death will exceed nil rate band (325k per person & addition of any unused IHT nil rate band of deceased spouse(s)).

Hope this helps

Holly

rachel23

Thanks Holly - is there anything we can do / anything MIL can sign to waive her rights to make this work?

IHT is not an issue and we are aware of deprivation of assets.

holly_hobby

Not if the lender won't accept it - which is typically the case.

Is the house currently mortgaged in MILs name ?

Is it interest only, with no repayment vehicle, which is prompting the exercise to keep her in the property ?

If so (and if her income isn't reqd), the possible way to navigate this would be to do a simultaneous transfer of equity (ie add you and partner to the deeds), and remortgage (on a repayment basis) - where the max term may be based on the age of the applicants whose income the mge is based, which may solve the prob (if its as I say to do with MIL having no repayment vehicle and her mge redemption date coming up) - this is obv also assuming you have a nice healthy credit record to throw in the mix.

Hope this helps

Holly

Senior_Paper_Monitor

Leaving aside any potential deprivations issues (and these are important) there are very few lenders - if any - who will even contemplate this arrangement.

I am currently negotiating something similar for clients and am having an absolute nightmare with I (albeit there are also some bad credit and non resident mortgager issues).

rachel23

Would there be a problem if MIL sold us the house for £135k (exactly what she owes to bank - house worth more like £185k) so no transfer of equity?
We would still have to take out a mortgage for £120k and would have far worse LTV but is this a way around it?

Holly yes she has a IO mortgage with no repayment vehicle (apart from selling up).

She is considering asking the lender (C&G) to increase the term to age 67 which would give us 3 more years to save. Currently on SVR 2.5% but aware rates will rise at some point.

Senior_Paper_Monitor

Joint ownership structure (Transfer of Equity, but not total) seems the way to go - needs professional advice rather than internet forum based advice.

Thrugelmir

rachel23 wrote: »

house worth more like £185k) so no transfer of equity?

Then transaction would certainly be considered to be contrived.

holly_hobby

rachel23 wrote: »

Would there be a problem if MIL sold us the house for £135k (exactly what she owes to bank - house worth more like £185k) so no transfer of equity?
We would still have to take out a mortgage for £120k and would have far worse LTV but is this a way around it?

No because you won't have vacant possession, which as explained earlier causes beneficial ownership issues for the lender.

rachel23 wrote: »

Holly yes she has a IO mortgage with no repayment vehicle (apart from selling up).

Suspected this was the issue

rachel23 wrote: »

She is considering asking the lender (C&G) to increase the term to age 67 which would give us 3 more years to save. Currently on SVR 2.5% but aware rates will rise at some point.

How will she save 135k in 3 yrs if the lender agreed to a 3 yr term extension ?

Going back to the transfer of equity (TOE) suggestion, as I stated, is that MIL STAYS on the deeds, whilst you are added on and move in, which means that if your income fully supports the mge (and existing commitments), you will be able to remortgage onto a capital and interest arrangement, and with several lenders have the maximum mortgage repayment term based on your age not MILs - which is the objective.

This requires advice from someone whom is experienced enough to understand how to circumvent the issues and organise how the submission is made (but should be easy for those whom know what they're doing) .... but I've given you the bones of what you need to do (and I am a industry prof if that settles the nerves ).

SDLT (stamp duty) = if MIL stays on deeds, nil as the effective TOE will be less than the current nil rate SDLT band of 125k.

Engage an experienced mortgage broker whom should be able to navigate this for you without too much issue (clean credit record for all applicants prevailing !).

Hope this helps

Holly

rachel23

Thank you for explaining Holly.

Saving would be for us to buy her out I mean rather than for her to pay off the £135k, we could take out a mortgage to fund the full value of the house and give her the cash so no issues (?)

We are first time buyers (have rented in past and now live with MIL) and have good credit histories. My credit score is 900 something and I've asked husband to look up his. We can afford a mortgage of £135k but not £185k as things stand.

We need to use child benefit and child tax credit as income if this makes a difference as I am aware some lenders do not accept these.

Beginning to think it might be easier for MIL to move into rented (as she had originally planned) but we have all become accustomed to living together now (have done for 4 years now).

holly_hobby

rachel23 wrote: »

Thank you for explaining Holly.

Saving would be for us to buy her out I mean rather than for her to pay off the £135k, we could take out a mortgage to fund the full value of the house and give her the cash so no issues (?)

Yes - if she moves out, or by some stretch the lender would be happy to accept they won't have vacant possession (which is v doubtful)

Otherwise noooooo - as I say, if you need a mortgage to buy ther property from her, she can not reside post completion.

rachel23 wrote: »

We are first time buyers (have rented in past and now live with MIL) and have good credit histories. My credit score is 900 something and I've asked husband to look up his. We can afford a mortgage of £135k but not £185k as things stand.

We need to use child benefit and child tax credit as income if this makes a difference as I am aware some lenders do not accept these.

Yes, there are lenders who will consider these benefits, but they'll be asssessed as secondary income - your broker will assist.

rachel23 wrote: »

Beginning to think it might be easier for MIL to move into rented (as she had
originally planned) but we have all become accustomed to living together now (have done for 4 years now).

That would be the answer if MIL has no desire in retaining property ownership - and means that you can for example pch the property from her on an agreed min purchase price of 135k so she can redeem the os mortgage, or in excess of this if within your income mulitple and the property values up to meet min LTV.

If you are purchasing for lower than market value (and as this is a direct family member), then you would (with several lenders) be able to utilise the difference between the pch price and this fig, under "family discounted purchase" (sometimes referred to as concessionary purchase).

Stamp duty will be calculated on what you actually pay mum for the property (ie 135k or whatever) - not what the market value is (which will be confirmed by lenders survey).

You should take note however that should she sell for less than market value, this may be cited as deprivation of assets, if she later seeks state assisted long term care, and it is reasonable to assume she knew she would need this when the gift (gifted equity) occurred.

A lot to absorb, your broker will be happy to guide.

Good luck .. hope this helps

Holly xx