Buying House for Parents - How to Fund Optimally?

tpritchard

My parents are both 60+ and fully own (mortgage-free) a property which they expect to sell for £105k. They would like to purchase a property which is expected to sell for £180k. We expect to bridge the funding gap of £75k by using £15k of their savings, and a mortgage of £60k.

Due to their income and age, we do not expect that they can get the mortgage, so the mortgage will be in my name. This will be a second mortgage for me, as I already have a mortgage on the property that I live in.

My parents would live in the property, not me.

To further complicate things, we would like the property to pass in equal shares to my sister and I when my parents pass on. This may mean that she needs to have some ownership of the property from the time of purchase - I'm not sure.

Could somebody please explain to me how to optimally finance this arrangement? I'm not clear on whether my parents effectively need to gift their share of the funding (£120k) to me (with CGT implications), and then I purchase the property with my sister being registered also, or whether there is a better way to do it?

All advice received with great welcome Please feel free to ask any questions that may make the situation more clear.

Cheeky_Monkey

Don't forget you will have to pay 3% stamp duty

TBagpuss

How much do you (or your sister) have in equity and savings? The simplest way to do it would be for you to lend your parents £60K, secured by a first charge over the property your parents buy.
You would need to ensure that the charge was prepared properly to allow for any future developments (for instance, them wishing to move again, or both moving into full time care)
When the second of your parents dies the debt to you would be repaid and the balance split between you and your sister.

If you can't do that then I think you may struggle - Most buy to let mortgages exclude renting to family so I'm not sure that you could get a mortgage on your parents' property. They may be able to get a mortgage with you as guarantor. They could also look into getting an equity release mortgage although this is generally an expensive way to borrow.

As others have said, if the house goes in your name you will pay the higher rate of stamp duty as it is a second property.

xylophone

http://www.ibs.co.uk/mortgages/for/over-60s

http://www.money.co.uk/mortgages/mortgages-for-over-60s.htm

Your parents can look into obtaining a mortgage - presumably they have/will take out life assurance to repay the mortgage on the death of either.

Your parents can choose to own their property as tensnts- in-common - the share of each can then pass by will with a life interest to survivor if required.