Parents selling house & want me to buy them new one with a mortgage

gcoops

Hello All,

My parents are retiring and having moved north many years ago now want to return back down south.

They plan to sell their property - for simplicity let's say for £200,000. They want to live in a property of similar value down south but also have some money to spend on how they see fit.

They want to gift me £100,000 to put down on a deposit for a new property and for the remainder of the property's value they want me to take out a mortgage of, for arguements sake £100,000.

They will then pay me the mortgage interest. In addition to the £100,000 they have retained they both have pensions.

This plan enables them to bank £100,000 to spend however they see fit. When they die I will sell the property keeping any rise in value minus CGT.

The advantage of this plan is they get to move back south into a reasonable property; they have cash to enjoy; when they die I get £100,000+ from sale of the property.

So, can anyone see a problem with this plan? Will I be able to get a mortgage, bearing in mind I am putting down a 50% deposit but it's not really a buy to let (which usually stipulate relatives cannot live in the property) nor is it my residence?

I know I won't fall foul of inheritance because it is below the threshold.

Any advice or words of caution greatly appreciated.

G

Annisele

I don't think you'll find a mortgage lender prepared to entertain that plan.

A (non exhaustive) list of problems that come to mind:

• Your deposit (the £100k) is coming from somebody else. That's OK in general if it's a gifted deposit - but this isn't a gift. It's a payment in exchange for your parents being able to live in the house for the rest of their lives.
• Your parents would clearly have a financial interest in the house (because they paid for half of it), but they're not going to be named on the mortgage. That means that if you stop paying, it'll be very hard for a lender to repossess out from under your parents. That means lenders won't be interested in the first place.
• You'll be a landlord, with all the legal responsibilities that come with that. Since you'll be letting to your parents, you'll need a regulated buy to let mortgage - and that might impact the amount of money you could borrow for your own house.
• These sorts of family arrangements have the potential to go *very* wrong - have a look through the forum and you'll see some horror stories...

It seems far simpler for them to just spend their £200k on a £200k property. If you want to lend them some money to spend (possibly to be repaid out of their estate), then it's easiest to do it that way than to expose yourself to a huge debt.

dimbo61

Why not look at renting an over 50,s apartment !
£200,000 in the bank should pay the rent for the next 20/25 years and Mum and Dad would have extra money to enjoy life.
No gardens to maintain, no building repairs, less council tax and smaller utility bills, smaller place to keep clean.
Lock the door, tell the warden/manager you are off on your holidays for two/three weeks and they can watch the property.
Part of a community with events and trips out every week.
Selling up would also give Mum and Dad the chance to buy a new superman to reduce car costs or a big Jag if that is what they want !
Owning your own property is great but it costs money to maintain and bills to pay, this way they get to enjoy some of there hard earned savings by turning the family home into cash to spend as they see fit.

gcoops

Thanks for responses so far.

My parents don't want to rent - they would rather me have the money than a stranger.

If they buy a property for £200,000 and pay for it all upfront themselves they cannot do the other things they want to do. I can't afford to give them money.

I can't see a problem of them gifting me £100,000. It's their money, they can do with it as they please and on receiving it I too can spend it as I please.

But I appreciate that a lender may have reservations because I am not living in the property and I know (having 2 already) that buy-to-lets don't allow the property to be rented out to relations.

RAS

Hi

If you marry and divorce the house in which your parents live is an asset of the marriage and half or more has to be given to your ex spouse.

If you are made bankrupt, the house is an assets which will be siezed by the OR.

As a landlord, you have to pay tax on the income from the house.

Your parents cannot claim housing benefit towards the rent because it is a contrived tenancy.

YOU cannot claim any means-tested benefit during their lives because you own a property in which you do not live and the state will require you to sell it to fund yourself (you get 6 months in which to sell it).

Any other ideas?

zarf2007

gcoops wrote: »

Thanks for responses so far.

My parents don't want to rent - they would rather me have the money than a stranger.

If they buy a property for £200,000 and pay for it all upfront themselves they cannot do the other things they want to do. I can't afford to give them money.

I can't see a problem of them gifting me £100,000. It's their money, they can do with it as they please and on receiving it I too can spend it as I please.

But I appreciate that a lender may have reservations because I am not living in the property and I know (having 2 already) that buy-to-lets don't allow the property to be rented out to relations.

The only way to do this is to keep quiet, pretend you are buying the property to live in yourself with a gifted deposit from your parents and then they move in and carry on paying bills etc....

not sure how the insurance situation would work but it can be done..

DomRavioli

zarf2007 wrote: »

The only way to do this is to keep quiet, pretend you are buying the property to live in yourself with a gifted deposit from your parents and then they move in and carry on paying bills etc....

not sure how the insurance situation would work but it can be done..

That's fraud - can land you in prison. Don't follow that bad advice OP.

Thrugelmir

The money paid to your parents will be deemed to be rent, and therefore treated as taxable income ( less the normal deductions of course). So over time you'll need to subsidise the mortgage from your own cashflow.

Realopinion

All sounds hypothetically dodgy to me plus if your parents face the same problem mine did, £200k doesn't buy you much down south as I am sure you know. They chose sunny Spain instead where £160k gets you a lovely retirement villa on the coast.

It sounds like the only way for you to get a mortgage would be to lie about the purpose you are actually using the property for; however call a broker and get their advice.

Jenniefour

Just read through some of the threads from people who have got themselves inappropriately entangled in property purchases with relatives. This idea is not a goer, as Annisele has said.

Your parents could buy and then consider an equity release scheme perhaps? Much as I dislike these schemes and they should only be considered as a last resort, they might be worth considering.

Would your parents be happy with a one bedroom flat in a coastal resort? That could free up some of the capital since it's possible to buy a nice one bedder for 150k in most places on south coast, except Brighton and Hove. Some with gardens. Would that work?

gcoops

Thanks everyone for your input - really appreciated.

If I am able to persuade the mortgage company to lend me the money then it will be interest only.

If I have to charge my parents rent it will be to the value of the interest - I therefore will not be making a profit and will have no tax to pay. As a landlord I only pay tax on profit from the income and there won't be any.

I'm not sure I would be a "Landlord" anyway. It won't be a buy-to-let mortgage it will effectively be a second home that I allow my parents to live in. How many other people have second homes that are empty for most of the year or they allow friends and family to stay in?

I cannot claim means tested benefits already because I already own a buy-to-let property. So no loss there.

Yes, there is a risk that if for any reason the property is reposessed then my parents become homeless but if they are paying the mortgage out of their pensions or savings that is unlikely.

I think Zarf2007 is partly right - not about keeping quiet but treating it as a second home which I then allow my parents to live in. Would that be allowed?

Spain is a nice idea but the whole point of them moving back is to be closer to me and my family. I would like the cheap holidays though!