Buying from a family member

IainBeale

Hi I am new to this forum and just looking for advice as I'm struggling to get any concrete information ( that I can understand ) from mortgage brokers.

First of all I want to purchase a property owned by a family member , sell our house and move home.

We have reached a verbal agreement of 95000 for a terraced house that has been split into a house and separate granny flat (valued at 120000 recently.) They share one deed and will be empty when we move in. We intend on converting back to one house.

I've been given around 6 month to complete bits of building work/decorating before we need to move . I have enough equity for a 20% deposit. Tho I would like to add 5000 to the mortgage to help with required work.

All I want to do is have a mortgage in place so I know I can buy the house once we have sold ours. I don't want to spend most of my savings doing up the property to be stuck and not get a mortgage.

I understand a valuation is needed for a mortgage but I've been told this would have to be after we have done any work. I don't understand why and don't want to have a lot of money and effort wasted.

Can anyone suggest the best way around this.

Thanks

Pixie5740

Are you wanting to complete the work before you actually buy the property?

Also where does the 20% deposit come from? Does it include the £25k of gifted equity you will be receiving?

G_M

The Valuation will be different before/after work.

Can you not sell & buy now, move in and live there, or is the planned work too disruptive?

The alternative is to spend the money on the work then when it is complete, sell/buy/move, but then there is always the (slight) risk you can't get a mortgage.

But is there an reason a mortgage would be refused?

* poor credit history?
* insufficient income, or job insecurity?
* property valuation might be less than you believe?

Given that you have a 20% deposit, AND the purchase price is 80% of the valuation, it doesn't seem much of a gamble.

IainBeale

I don't understand what gifted equity means and how it effects me. My current home was bought 10k under asking price. That's not gifted equity I don't know why this would be.

My 20% would come from the sale of our house which is now valued more than we paid for it

I wouldn't want to move in straight away as it is a bit of a mess from previous and we have two small children. (Mainly want to put new kitchen in) Will a valuation effect my chances of a mortgage?

I've seen I can check my credit history which I believe will be fine, never had any issues before late payments etc... Only ever had a student loan.

The only issue I can think off is the granny flat.


Online calculators say we can borrow between 100-120k so I can't see that being an issue either.

Thanks for quick reply

p00hsticks

IainBeale wrote: »

I don't understand what gifted equity means and how it effects me. My current home was bought 10k under asking price. That's not gifted equity I don't know why this would be.

Was your current house bought from a family member though ?
Gifted equity is when you buy a house at a price below its true market value.

https://www.nicheadvice.co.uk/gifted-deposit-or-gifted-equity-mortgages/

IainBeale

OK thanks I guess we need to get valued by the lender to see where we stand

Pixie5740

If the property you are buying is really worth £120k and your family member is selling it to you for £95k then that's £25k of gifted equity.

I'm still unclear on what it is you are trying to do. Are you wanting to obtain a mortgage for the new property before you sell your current home so that you can do the new place up before moving into it and then selling the current home, or are you wanting to do the new place up then sell your current home and then get a mortgage for the new place?

AdrianC

It's very kind of you to spend six months renovating your relative's house, on the promise of a sale.

What if the relative backs out of that promise?

AnotherJoe

AdrianC has nailed it.
So, either buy it as a second home (extra SDLT,) renovate, move in and then sell your current home, and reclaim the extra SDLT, or
Sell yours, buy this one move in and live with the disruption.

As to "I understand a valuation is needed for a mortgage but I've been told this would have to be after we have done any work. I don't understand why and don't want to have a lot of money and effort wasted" look at it from the lenders POV. Suppose you make a botch of the renovation, or even fail to complete it and leave a mess (same thing I suppose) it may now be worth even less than you started with. You're only considering the best outcome, not the worst. They are considering the worst.

IainBeale

OK now I'm even more confused.

I think I was under the idea a mortgage had to be in place before my current home was sold. So I know once we have a sale we are free to move in.

No gift was intended or needed. If the property went on the market. He would accept that amount from Joe Bloggs .

I don't need to sell our house before we do any renovation as I have the money for required work. This would be paid back once we complete.

There is no danger of this house sale falling through we want the same outcome. There is no chain etc.. mortgage is fully paid off.

I'm confused by AnotherJo sorry. I'm not trying to add value to the property just make it livable before I move my family in. Won't the mortgage just be on the house in its current condition? I wouldn't think about informing my current mortgage provider if I wanted to put a new kitchen in my home so why would this be an issue with my next home


Thank again for your speedy advice

theartfullodger

The authorities (HMRC, Benefits etc etc...) are entitled to assess the transaction at genuine market value: That someone would be prepared to sell for less to Joe Blogs does not prevent them wondering if (I make no comment regarding yourself or your relatives) some fiddle is going on. It's part of what we pay HMTC, DWP etc for...

So if, for example, stamp duty is due that may be charged at market, and "deprivation of capital" rules could come into it..

If any relative of mine wanted to sell a property for significantly below market to anyone or Mr Joe Blogs I would be doing all I could to get the doctors involved and possibly more severe..

There are too many examples of older people being "persuaded" to sell at daft prices and getting ripped off: Not you, obviously.