Buying a house from a family friend & releasing equity

cuppa_t

We have a family friend, they own their house outright, no mortgage. It's worth in the current market something in the region of £600k

They've been looking at wanting to release some of the equity in that house - something in the region of 1/3 maybe. So far all the options have looked at costing quite a lot of money or handing over a large chunk of the value - but given their age it seems like their only option.

We have considered wanting to buy the property - but we want to be completely above board - no tax games or delboy trying to pull a fast one.

Can they sell the house for less than the market value? Only concern in particular would be stamp duty, but we would be happy to pay the stamp duty on the market value of the house if that makes a difference.

Between us we will come up with an agreement about how to pay things back, but getting a mortgage and it being secured on the property was an idea. He still works although he's a recent pensioner, and will be working for years to come yet, but getting hands on money in order to help out family members, go on various trips to visit family around the world - that sort of thing, that's the aim.

Is this a pipe dream?

It's really all just about getting hands on cash, and securing an asset against it i think. Would love to help out if we can

CLAPTON

cuppa_t wrote: »

We have a family friend, they own their house outright, no mortgage. It's worth in the current market something in the region of £600k

They've been looking at wanting to release some of the equity in that house - something in the region of 1/3 maybe. So far all the options have looked at costing quite a lot of money or handing over a large chunk of the value - but given their age it seems like their only option.

We have considered wanting to buy the property - but we want to be completely above board - no tax games or delboy trying to pull a fast one.

Can they sell the house for less than the market value? Only concern in particular would be stamp duty, but we would be happy to pay the stamp duty on the market value of the house if that makes a difference.

Between us we will come up with an agreement about how to pay things back, but getting a mortgage and it being secured on the property was an idea. He still works although he's a recent pensioner, and will be working for years to come yet, but getting hands on money in order to help out family members, go on various trips to visit family around the world - that sort of thing, that's the aim.

Is this a pipe dream?

It's really all just about getting hands on cash, and securing an asset against it i think. Would love to help out if we can

are you planning to buy with a view to living in it or will he continue living there?

cuppa_t

The couple would continue living there.

I've also chatted about it with one of the children and they would like to consider doing something similar and be involved.

They're too old to remortgage, equity release schemes seem too costly, so any other options in order to change/transfer ownership of the house as cheaply and easily as possible, and then somebody else other than the couple to be able to release equity in the pretty valuable property is the primary aim.


It's now too late on a friday to start phoning around financial advisors, mortgage brokers - so i came looking on MSE

Thank you.

CLAPTON

in principle they could sell the property to you or one or more of their children at any price that is mutually agreed

however they would no longer own the house and could be liable to eviction

if you need a mortgage to buy the property then it may prove difficult although a family member may be in a better position : subject of course to your income and ability to pay the mortgage

if they sell below cost and pay no rent then the transfer of ownership will be seen as one reservations and so will be ineffective for IHT purposes and any subsequent sale will be liable to cgt.

kingstreet

You'll have issues raising a mortgage if the current owners will continue to live there.

SDLT is based on the actual consideration paid, not the market value.

Possible deprivation of assets issues if they sell it you for less than market value and one later needs council-funded residential care.

cuppa_t

Maybe a buy to let mortgage, and rent it back to them at a pre agreed rate?

I think after the weekend i'll be making enquiries.

kingstreet

cuppa_t wrote: »

Maybe a buy to let mortgage, and rent it back to them at a pre agreed rate?

Then you'll fall-foul of the sale & leaseback regulations.

Search the FCA website for more.

cuppa_t

Any recommendations on extracting money from a mortgage free house for an older couple?

Can a third party jointly apply as some sort of guarantor, with a charge or similar put onto the property?

CLAPTON

why can't their family help them directly by giving them money

cuppa_t

Availability of liquid funds, and wanting to secure against their only asset other than cars which aren't worth much.

The limited knowledge that I have of equity release options are that it's much more costly in the short to medium term.

Why's it so hard to borrow against your house as you get older? If the borrower couldn't make payments or died, wouldn't the lender have significant security in the charge over the property?

CLAPTON

cuppa_t wrote: »

Availability of liquid funds, and wanting to secure against their only asset other than cars which aren't worth much.

The limited knowledge that I have of equity release options are that it's much more costly in the short to medium term.

Why's it so hard to borrow against your house as you get older? If the borrower couldn't make payments or died, wouldn't the lender have significant security in the charge over the property?

Any sort of mortgage requires regularly repayments; if neither he nor his family have liquid funds then a normal mortgage will not happen

equity release is a glorified mortgage that only gets paid on death

security isn't really the issue : it's how the loan will be repaid including the interest.