Buying Parents' Property

norsefox

In 2008 my parents bought a flat in Glasgow to save money on rent during my brother's and my time at university.

In 2010 my brother decided to move out and my gf moved in. In 2012 I graduated and have been paying them rent since.

Now my gf and I are looking to buy our first property. We have met with Nationwide and the flats we are looking at are easily affordable.

However, my parents have offered to sell us the flat for less than the market valuation - all they want is to pay off the outstanding mortgage. With 6 years mortgage payments, investment in the property and increased house prices and investment in the area - the outstanding mortgage on the house is likely to be <75%.

Does this create any complications? Or would we still be able to use our Save to Buy with Natiowide, using a 10% deposit?

How does LTV work? Is it deposit in relation to amount borrowed, or deposit relative to the value of the property?

kidmugsy

norsefox wrote: »

How does LTV work? Is it deposit in relation to amount borrowed, or deposit relative to the value of the property?

It's one of those things where the name happens to be accurate: it's the size of your loan divided by the value of the property (then expressed as a percentage). Your lender decides what the value of the property is in its view.

GMS

You could do a 'sale at undervalue' transaction whereby the equity would become the deposit.

Parents would need to sign declarations as th the nature of the equity i.e non refundable gift.

Ensure the lender will be happy with the transaction or use a broker.

kingstreet

It appears you want to undertake a concessionary purchase at a value under what the property is realistically worth.

There are lenders which will allow this between family members and treat the price reduction as part of your deposit.

Further, if stamp duty applies, it is based on the actual consideration, the amount changing hands, not the true value. However, your parents' CGT liability will be based on the true value.

You'll need to check with your lender if it will allow a concessionary purchase and speak to an independent broker if it won't.

norsefox

Hi all, thanks very much for the swift responses.

I don't believe stamp duty would apply in any case - it may be close to £125k in valuation but I do believe it would be below this.

I also believe that CGT would not apply as the relative gains would be below the annual exempt amount. My partner is an accountant, so in any case I would confirm this with her.

As I say, at this point it is a consideration, specifically as if we bought another flat it would likely be significantly above this cost. I'm meeting an advisor tonight so will see what they say and discuss it with Nationwide when we look to arrange our mortgage in principle meeting.