Mortgage to buy out brother

kevin1971

My mother-in-law signed her property over to my wife a few years ago because of bad health. The property deeds are in my wife's name only. We always had a verbal agreement with her mother that we would get the property valued when the time came and get a mortgage to give half of this money (cash) to her brother as we intend to keep the property to rent.

None of this is in the will as my wife already owns the property and has done for around 4 years, but to carry out her mothers wishes we will need to get a mortgage for half the value, around 75k. I read on another thread that only the person on the deeds can get a mortgage against the property which means my wife would have to get it alone but she only earns around £14k a year.

1. Would we need to have my name added to the property deeds to get a joint mortgage based on both salaries?

2. What type of mortgage would we need (we intend to rent the property)?

3. can we offset the mortgage against the rental income i.e. only pay tax on any profit after paying the mortgage payments?

Thank you for any light you can shed on this for me...I don't want to get it wrong and end up paying more than I need to to Mr Tax man, but want to stay on the right side of the law.

Yorkie1

kevin1971 wrote: »

My mother-in-law signed her property over to my wife a few years ago because of bad health. The property deeds are in my wife's name only. We always had a verbal agreement with her mother that we would get the property valued when the time came and get a mortgage to give half of this money (cash) to her brother as we intend to keep the property to rent.

None of this is in the will as my wife already owns the property and has done for around 4 years, but to carry out her mothers wishes we will need to get a mortgage for half the value, around 75k. I read on another thread that only the person on the deeds can get a mortgage against the property which means my wife would have to get it alone but she only earns around £14k a year.

1. Would we need to have my name added to the property deeds to get a joint mortgage based on both salaries?

2. What type of mortgage would we need (we intend to rent the property)?

3. can we offset the mortgage against the rental income i.e. only pay tax on any profit after paying the mortgage payments?

Thank you for any light you can shed on this for me...I don't want to get it wrong and end up paying more than I need to to Mr Tax man, but want to stay on the right side of the law.

1. Yes.

2. Buy to let. Best to go through an independent, whole of market broker as many of the deals are available through brokers only.

3. The rental income is taxed as income; I believe that the interest you pay on the mortgage can be offset against tax - but others will confirm. If you have a repayment (rather than interest only BTL mortgage) then you'd need to identify how much of your monthly mortgage repayments were interest as opposed to capital, and deduct only the interest portion.

kevin1971

Thank you,

So...Would the £75K BTL mortgage offer be based on my wife's income/outgoings? or based on the fact that the property is valued at £150K? which is a win win for the lender as if we don't pay, they reposes and this would mean that there's no need to add me to the deeds.

Annisele

The amount a lender will lend on a BTL is usually based on the potential rent, rather than on the applicant's salary.

But - and it's a big but - a lot of lenders have a minimum salary. That's often in the £25k range.

I second Yorkie1's recommendation of a visit to an independent whole of market broker.

kevin1971

So why would I need a "buy to let mortgage"? I already own the property outright with no mortgage and could choose to rent it tomorrow perfectly legally. Surely I can get a mortgage/loan for the £70K and simply "Gift" it to him as his name is not on the deeds and the property was given to us years ago a gift and not as inheritance... this way the mortgage has nothing to do with the property that I'm going to rent

getmore4less

you need to make it clear which property you intend to rent and which one you are getting the mortgage on.

getmore4less

Does the MIL still live in the property?

Why was it signed over? in most cases not that good an idea as it has very little benifit especialy if the doner still lives in it,


If the brother not live there and as the brother is a benifitial owner, then there could be a CGT liabililty when he sells you his 1/2

kevin1971

The brother is not a beneficiary as the property was given to us as a gift. The deeds have my wifes name only and there is no mention of the house in the will as it is no longer part of her estate. The mother in law is now in a hospice with little time left and so I am trying to sort out the finer details before the time comes. Long story short the brother (her son) was a pain in the Ar*e and she didnt want him to get anything. We were uncomfortable with that and agreed with her that when the time came we would get a mortgage and pay him half the value as she wanted us to keep the property for investment.

I want to rent it but cant see why I would need a BTL mortgage with all the costs that come with it when I already own the property outright. As the property is in my wifes sole name perhaps she could get a mortgage and pay him then gift the property to me to rent...

CAN1976

At the point you get a mortgage on it you no longer own it outright, and as you won't be living in it yourself would need a BTL mortage

Yorkie1

kevin1971 wrote: »

I want to rent it but cant see why I would need a BTL mortgage with all the costs that come with it when I already own the property outright. As the property is in my wifes sole name perhaps she could get a mortgage and pay him then gift the property to me to rent...

You are confusing 2 issues.

1. Raising money to pay off brother.
2. Renting the property out.

You can rent the property out without having a mortgage on it at all, of course. But if you want to raise money on the property in order to pay off brother, you (or, to be more precise, your wife as you are not an owner of the property) will have to get a BTL mortgage because a residential mortgage isn't available - you don't live it in. To obtain a residential mortgage on the property when you intend to rent it out is mortgage fraud.

getmore4less

If the MIL lived in the place it would be a gift with reservations so it's full value still forms part of her estate(for IHT calculations) for up to 7 years from the date the reservation ended(she moved out).