Who is up for a complicated question??!

Emgee71

Hi, first post and I think I might have a belter for you mortgage buffs...

My father died recently and I would like to buy his house.
He has an equity release mortgage outstanding against it.
I have a sibling who has been left 50% of the equity along with my 50%.

To purchase the house I would need about £210k to pay off the equity release mortgage and the pay my sister her half of the nett equity (valuation was £275k).

Problem I have is that my credit rating is toast. I'm self-employed and I had cancer in 2011 which meant I didn't have any income for 9 months and some mortgage payments were missed as well as some other payments.

Based on my current circumstance the only mortgage I can get is for less than I need and at a very prohibitive percentage rate that effectively makes the purchase uneconomic and unaffordable.

The equity I have in the property is roughly equivalent to about 30% of it's value.

Can I get a friend (who has an excellent credit rating) to purchase the property at the value that does not include my 30%stake? I would then live in the property paying off the mortgage he took out and then in 2/3 years when my credit rating has recovered I could buy the property back off of him plus give him half of any new growth in the value of the property above the original valuation as a sort of fee.

Is there a mechanism available whereby I could structure a purchase like this? What level of disclosure would a lender require with this type of arrangement? And also, would a non-domiciled person living overseas be better placed to be the white knight for me?


Many thanks in advance, E71

Foxy-Stoat_3

So your mate would buy the property at £275,000 as a BTL, he will need £68,750 deposit plus £8,250 stamp duty and any other fees. The Estate would save the estate agent fees which will be a good thing.

You would need to agree the rental terms, either the market rate or just enough to cover the mortgage.

You would then clear the equity release loan and gives you and your sister your percentage, after the rest of the debts have been cleared.

You could put the £47,000 in a savings bond for you to use as a deposit in a few years time at whatever the property value would be when you sell.

If the person was overseas had the capital or credit then no reason why they couldn't buy it as in investment.

Thrugelmir

Although you plan is to pay the mortgage directly. This would be deemed to be rent in the eyes of the HMRC and hands of your friend. So would be appropriately taxed.

If your friend failed to declare the tax and was subsequently found out. Then the tax, along with penalties and interest, and fines for failing to complete accurate self assessment returns would be severe. Potentially resulting in the HMRC repossessing the property to discharge the accrued liability.

Is it really worth the risk?

getmore4less

Valuation £275k good chance getting over £250k will be tough unless really worth that.

are the current lender pushing for their money, is sis in a hurry.

could look at renting of the estate till you can raise funds.

CLAPTON

your mate pays income tax on the rent
and will pay cgt when he sells it

Emgee71

CLAPTON wrote: »

your mate pays income tax on the rent
and will pay cgt when he sells it

He'd only pay tax on the net rent above the cost of the mortgage payment wouldn't he? CGT is a concern - would that be at 40%

One thing that hasn't been answered is my equity stake in the property - can that be used to lower the required BTL mortgage? What are the rules on 'gift equity'?

Also, I am away of the 'Tenants in Common' - could this be done with unequal shares - my 30% and the other 70% borrowed by my friend?

I can easily afford the required mortgage (c.£1k a month) but I just need the time until my credit rating has recovered in 2/3 years time.

Thanks...

Thrugelmir

Emgee71 wrote: »

He'd only pay tax on the net rent above the cost of the mortgage payment wouldn't he?

That only will mount up.........

Emgee71

Thrugelmir wrote: »

That only will mount up.........

Not if the net amount is zero!

getmore4less

I will fix this for you

Emgee71 wrote: »

He'd only pay tax on the net rent above the cost of the mortgage INTEREST wouldn't he?

Emgee71

Nobody has actually been able to answer my query - is there any structure or mechanism that will allow me to buy the property utilising my 30+% equity share by proxy via someone else?

GMS

The only way to use your 30% would be to get a joint mortgage.


Your plan has many flaws as suggested.


You cannot own 30% of a property whilst somebody else has a mortgage on the rest. You can't gift the equity to your friend as you are not related.


Even if you could gift the equity you could not then reside in the property.


Which lender has offered you a mortgage for the lower amount?


How bad is your credit?