Gift of equity when buying parent's house?

btowill

I posted on here a couple of days ago about buying my mum's old house https://forums.moneysavingexpert.com/discussion/4931223

Since then, I've been doing a bit more research and have come across a few references to 'gifted equity' so wondering if this is an option? If we take out a mortgage to cover £180K and then mum gifts us the remainder of the equity (as described here http://www.nicheadvice.co.uk/gifted-deposit-or-gifted-equity-mortgages/) then it looks like we would get a favourable ltv mortgage rate too.

However, I can't find much about this approach on the net (well in the uk anyway - it seems quite common in the us). Anyone have any experience of this?

Some extra notes that may be useful: mum owns both this property and her current property outright, so has about £500K of equity in them both.
She wants to use the money from the sale of this property to purchase another btl property in a different area where the yield is much better than her current property. Where we live she could buy a property for £150k and get the same rental income as she did for her cottage.

Thanks in advance

da_rule

Look at the inter-family sale section of this website: http://www.ns-fs.co.uk/GIFTED-DEPOSIT-MORTGAGES..html

The gift of equity is essentially treated as a gifted deposit. 2 things to note, your stamp duty will be based on the market value as will any capital gains tax your mother is liable for.

00ec25

as I said on your other thread
http://forums.moneysavingexpert.com/showpost.php?p=65079879&postcount=14
perfectly possible but somewhat limiting in choice

your final LTV will not be known until the lenders surveyor undertakes the mortgage valuation and given the theme of the other thread was the property is overpriced what would you do if the valuation comes in a lot lower than you mother seems to want for the property.

Normally in that situation the purchaser would have to find the difference from their own cash or walk away. In your case you don't have it as you say 20k is the max cash you have, so how low a valuation will mother accept?

Thrugelmir

Does your mother crystallise a CGT liability on the property when she sells it to you ? May impact everybodys plans.

btowill

00ec25 wrote: »

your final LTV will not be known until the lenders surveyor undertakes the mortgage valuation and given the theme of the other thread was the property is overpriced what would you do if the valuation comes in a lot lower than you mother seems to want for the property.

I think a lot of those previous comments about the asking price being too high were made without the posters knowing the full story.

Mum had a couple of interested parties who had second viewings when it was on for £230k 6 months ago. However, they were put off by the fact it didn't have parking and that the outdoor space was small. Since then, I've negotiated a private allocated parking space that backs onto her garden for a licence of £30/year (!!) and encouraged her to clear out the piles of crap from the garden and sun terrace, which I'm sure we're putting people off!
It's now on with a new agent, who valued it at £220k, so I can't foresee the mortgage valuation coming in under the £210K price she is offering.

However, regardless of whether it is me or another party buying the place, it the valuation DOES come back a lot lower than this, then mum would really need to look at her asking price.

Thanks for your advice though - it's good for me to hear all the various issues that may arise in this situation.

kingstreet

This is a concessionary purchase and although possible is by no means common and many lenders won't touch it.

You need the lender's valuer to value it at the higher figure, or it all falls apart.

Contrary to what's been written earlier, the stamp duty is based on the consideration paid, the lower figure, not the headline figure, but CGT will be calculated on the higher market value.

I suggest you discuss this with a whole market broker to investigate your lender options.