Buying the next house before selling current - advice ??

Paul222

Hello,

Not sure weather I need the advise of an accountant or a mortgage advisor her, but I have I plan in mind regarding moving houses and would like to see if anyone has considered something similar in the past – I am pretty sure there’s bound to be some tax considerations somewhere.

Currently a house owner with £140k/£140k mortgage/equity. All in my name only, although I have a partner and 3 kids and have no reservations about putting anything in joint ownership with her. Standard variable mortgage with no lock in’s.

We want to move houses and my partner’s (single) mother has just sold her house and is renting, pending on where we end up. She has £200k in the bank and paying out £700 per month rent (she’s employed).

Through a combination of additional savings and increased mortgage, we are looking at up scaling to £450k house (£200K equity, £250k mortgage).

Now to the idea – rather than going through the stress of a full move, my partners mum somehow ‘lends’ us the £200k and I use this plus a new £250k mortgage to buy the next house without initially having to sell ours. My would-be mother-in-law then moves into our existing house and pays the mortgage until its sold, then freeing up her money again.

I have two questions that I would like to see if anyone knows the answers too -

Tax question - the movement of £200k to myself, and its eventual move back one the original house is sold – what if any are the considerations ?

Mortgage question - getting an additional mortgage while my current one is sill in progress. Would I have to convert to a buy-to-let ? or could my would be mother-in-law’s income somehow be taken into consideration ?

Has anyone done something similar to this in the past ?

Any advice or experiences really welcome.

Cheers
Paul.

marliepanda

Firstly you'll have to explain where this mystery £200k came from. You will also have to declare it as a gift otherwise it won't count. I don't know if you can 'gift' someone that much without tax liabilities.

You will need consent to let on your old property.

Tax wise I have no idea on.

chris_m

marliepanda wrote: »

Firstly you'll have to explain where this mystery £200k came from. You will also have to declare it as a gift otherwise it won't count. I don't know if you can 'gift' someone that much without tax liabilities.

My assumption based on the OP is that it wouldn't be a gift, but a loan of unspecified duration, so I don't think there'd be a tax implication.

Probably the safest thing would be to have it down as a private mortgage, with no monthly repayments due. That's what we did with the balance of the value of my flat when I bought as much as I could from my parents. It was drawn up as a deed, by the conveyancing solicitor, and the building society was quite happy with that - granted, this was 20+ years ago though.

marliepanda

chris_m wrote: »

My assumption based on the OP is that it wouldn't be a gift, but a loan of unspecified duration, so I don't think there'd be a tax implication.

Probably the safest thing would be to have it down as a private mortgage, with no monthly repayments due. That's what we did with the balance of the value of my flat when I bought as much as I could from my parents. It was drawn up as a deed, by the conveyancing solicitor, and the building society was quite happy with that - granted, this was 20+ years ago though.

The mortgage company likely won't accept a loan for the deposit...

Annisele

Paul222 wrote: »

Now to the idea – rather than going through the stress of a full move, my partners mum somehow ‘lends’ us the £200k and I use this plus a new £250k mortgage to buy the next house without initially having to sell ours. My would-be mother-in-law then moves into our existing house and pays the mortgage until its sold, then freeing up her money again.

I think that sounds more stressful that just doing things normally!

Off the top of my head:

• As others have said, the lender on the new house is unlikely to be happy with a gifted deposit.
• If the £200k from your MiL is a loan, many lenders will assume you're making monthly repayments to it (even if you aren't) and that'll hit your affordability. (I'm just going to call her your MiL; I know she's your partner's mother but there isn't a nice abbreviation for that).
• If you leave your first mortgage on a residential basis, then your income will have to support both mortgages.
• If you convert the existing mortgage to a let-to-buy, or if you get consent-to-let on it, and if your MiL pays sufficent rent, then some lenders will consider the existing mortgage self-funding (which will help your affordability). But will MiL be happy lending you £200k, not receiving interest on the £200k, and paying rent? Seems a poor deal for her!
• If your MiL is renting your old property, you may find it harder to sell. Some buyers won't even view a property if they know its tenanted - and very very few will exchange before the tenants actually leave. (If they're buying with a mortgage, their solicitor won't let them exchange before the tenant is out. If they're cash buyers, they can do what they want but their solicitor will give strong advice).
• Any income you receive from your MiL as rent will be taxable in your hands. You can claim the mortgage interest against that tax, and various other expenses, but even if there's no actual tax due it'll cause you a bit of hassle in reporting to HMRC.
• You'll be your MiL's landlord, and responsible for gas safety certificates, deposit protection, landlord registration etc (those things depend on where in the UK you are; Scotland and England have different rules).
• What if you property doesn't sell as quickly as you hope, and your MiL wants to move out? Can you afford the mortgage without her payments?
• What if MiL finds a property she loves, and needs her £200k back asap?
• What if you/your MiL/your partner dies/gets divorced/goes bankrupt/becomes too ill to work?

There are almost certainly other problems that I haven't thought of.

samroo

Another way of thinking about how to do this would be remortgaging your current home for as much as possible. Your MIL could then jointly purchase your new home with you using her cash to fund the shortfall for what you need for the new house (there will be affordability issues for the second mortgage). You sell current home, repay MIL and change ownership of your new home. This will obviously have problems and challenges but it might be a way forward that does not need your MIL to gift or loan her cash or the pitfalls of becoming a Landlord

ethank

I doubt this would be acceptable to a lender. Your MiL would have to confirm this is a gift and not a loan. If you were to have one mortgage and a loan from your MiL on the property, there could potentially be a conflict on who has charge over the property. The lender will want to be able to repossess if the mortgage is not paid.

No one is going to give you a mortgage where a gift of that size has been given, especially when you explain that MiL is moving into your current property.

Why do you need to buy before selling your current property?

I_have_spoken

You say partner's mother is renting pending on your relocation. I assume she would then move to live nearby to help with child care etc?

Why not cut out another sale cycle and buy a property with a 'granny flat'/annex so you and partner's mother are named on deeds as buyers?

Clearly wills and life assurance must be in place so if the worst happens the children aren't left homeless etc.

chris_m

ethank wrote: »

If you were to have one mortgage and a loan from your MiL on the property, there could potentially be a conflict on who has charge over the property.

Not if it's drawn up properly on the title register - the mortgage lender goes on as the first charge and the MiL as a second charge. That way, if there is a repossession, the mortgage lender gets their cut first and MiL gets what (if any) is left.