Mortgage - what to do?

deanbarlow

Hi,
I would like some advise if possible. My father-in-law wishes to move house and has offered me the option of buying his current house for 80k however it is actually worth 110k. I am currently in the forces and don't need to live in the house as we Iive in military accommodation so my plan is do some work on the house and then sell it for profit in order to pay off another mortgage which my wife has on another property which we rent out.
I have 12k disposable cash for a mortgage deposit on the 80k. We would like to complete this process as quickly as possible so understand that a mortgage with no early redemption penalties would possible be a good option.
Do any of you have any advice on this for me?

jamesd

Does he agree with your plan? Don't even think of doing it unless he does, and if he does he should probably get a share of any gains.

You may face difficulty getting a mortgage. It's not going to be your home, so you won't qualify for a residential mortgage. You don't have enough deposit for the commonly available BTL mortgages, that tend to both need 30% or more deposit and often will require that you are already a home owner.

Does your father in law need the money to allow him to move? If not the best plan may be to have him move, do up the place, then sell and split the gain. It's also possible that if he needs a mortgage, his new lender might accept this plan to sell and in the meantime if you commit to paying rent to cover the mortgage might treat it as a temporary self-financing buy to let property. That could eliminate affordability issues for him.

This sort of thing is where development or bridging financing providers can come into play because they are more used to this sort of transaction and have products that are more natural fits for it.

If you say a bit more about his situation - particularly whether he needs a mortgage on the new place - that might help the mortgage brokers and others here make more refined suggestions. Should be doable, just a case of working out how.

There's a potentially very substantial tax benefit with him being the owner at the time of sale after the property has been improved. He'll get personal private residence relief from capital gains tax. Possibly also letting relief if you rent the place from him for a while as it's being done up. You won't be eligible for those reliefs. In his case, that will probably eliminate any CGT. You'd be liable for a lot of it - probably ten thousand plus in CGT.

So for those reasons your original plan doesn't look great, but there does seem to be potential here to make some money.