Buying From Parents

WestWalesEd

Hello all, first time poster here, hoping to get some advice.

To cut a long story short, my parents own two houses. Both on interest only mortgages. The grand plan was to sell the first one to pay off the remainder on it, and the second house which they now live in. The first house has finally sold (pending contracts being signed - so never say never) for 130k. This will pay off remainder of first house and leave a 59k shortfall on the second.

The snag is that my parents are both getting on a bit and the mortgage company (NRAM) who they have the mortgage with on the second property are hassling them big time because my parents have gone over the maximum term. Potential repossession.

I earn 27k and do not have a mortgage. I rent. Obvious plan is that once the first house completes, I then take out a mortgage and buy my parents house for a minimum of 60k, but will probably pay 80k to roll in personal debts that belong to both myself and my parents. Might even go bigger and use some to do work on the parents house. This secures the house and frees up money for both them and me each month. Obviously it means I'm liable for the mortgage and can't buy my own house (to live in, keep up!) but I can't let my family be chucked out!

My bank have confirmed that I can be offered up to (around) 110k.

However, they also said that I am unable to buy the house as the property must be "vacant upon purchase" and that my parents cannot remain living there? Has anyone else encountered this and could you offer any advice? The mortgage advisor at Lloyds did say it was a bank policy and not every bank will approach the same way. I'm off to see a broker this afternoon.

Hope that all makes sense - any clarification needed just let me know but am hoping for moral support and or adivce!

eddddy

So you don't plan to live in the house?

Your bank is probably talking about a residential mortgage - so you would need to be an owner-occupier.

And you can't normally get a buy-to-let mortgage either, if the tenants will be your parents.

If you were to move into the house, and your parents became "lodgers", you might stand a better chance.

(And did the bank take into account your rent payments when looking at affordability. If it's a residential mortgage, they may have assumed you would stop paying rent.)

WestWalesEd

Thanks for the reply eddddy!

I don't plan to live in the house if I want to save my sanity! But in all seriousness, no, there isn't enough space for a start. I'm also a first time buyer, not sure if this affects buy to let. To be fair the advisor did say that it would be "assumed" that rental outgoings each month would be null and void when calculating the repayments each month and when rolling in debt repayments, my monthly outgoings would effectively be zero when calculating the mortgage affordability.

Nope - the sticking point seemed to purely be that my parents could not continue to live there. It needed to be "vacant upon purchase". I queried this somewhat facetiously by asking exactly what that meant - no answer and which point I said "well what does it mean? That my parents have to be out for lunch when the contracts are signed?".

I know that sounds flippant but it's absurd. I want to engage in a private transaction with a family member to buy a property which will mean that

a) my elderly parents and disabled brother are not turfed out and
b) long term, from my point of view, I have a 200k property for around 80-90k.

WestWalesEd

Great advice, many thanks booksurr.

I've not bought a house so this is all new to me.

1) no, not considered capital gains tax. I don't have the exact figures so I'll need to get back to you on that one. Something to mention to the broker today though so thanks!

2) right, that makes some sense. but are there exemptions for family? It seems crazy that I can't ask my own family to live with me (in theory - though this is not the reality).

3) the property is worth 200k at last valuation. so the gifted equity would be 140 - 110k depending on how much I take out. I have been advised that this existing equity could be used as a deposit thereby freeing me from that burden?

Brock_and_Roll

Right for starters, the OP's parents are highly unlikely to be "turfed out". Clearly there is a lot of equity so the bank may either come to an arrangement, or this will be one of the few occasions where an equity release or lifetime mortgage might be appropriate.


For mortgage lenders, any loan where there are either tenants in situ or family members cause lots of potential problems in a default scenario that may give them problem in obtaining vacant possession.


Finally, the OP needs to consider Deprivation of Assets rules. IN a nutshell the parents would be gifting their equity to the OP. As a result if the parents were ever to require long term care or other state support, they may be deemed ineligible.

marksoton

WestWalesEd wrote: »

I know that sounds flippant but it's absurd. I want to engage in a private transaction with a family member to buy a property

But you want to do it with someone else's money i.e the lender.

The other flag is trying to pay off debts. I can't imagine most lenders will allow this.

gingercordial

Wanting to help your family is admirable, but bear in mind this might cause you problems down the line if/when you want to buy your own place:

- You would be subject to the extra 3% stamp duty because you would be buying a second home at that point.

- You may not be able to get a mortgage for your own home because you already have a residential mortgage and would fail affordability criteria for a second.

There have been plenty of cases on this board of people coming to ask for advice because they have done what you're suggesting to help out a family member, and it has now made buying their own home difficult or much more expensive. No good deed goes unpunished.

Cheeky_Monkey

Bit late now but I would have thought the obvious solution would have been to keep the first house to live in (the one currently being sold) and sell the second house as it appears to be worth more. Then pay off both of the interest only mortgages as they would have had more equity in the second.

Was that not possible for some reason?

WestWalesEd

Hi Cheeky

Yes, not possible as my father has Parkinsons and so needed house with bigger rooms etc for equipment, wet room - blah blah otherwise yes the first house would have been a better option, financially!

WestWalesEd

Hi Ginger

Yes, I have thought about that but I'm not in a position to say no really! Will cross that bride when I come to it!

xylophone

Yes, I have thought about that but I'm not in a position to say no really! Will cross that bride when I come to it!

You're going to have a very unhappy bride.....:)

And she might be unhappy anyway to discover that you and she cannot get a mortgage/have to pay additional stamp duty etc because of the arrangement with your parents....

You indicate that a disabled sibling lives with your parents - this could make the equity release idea a non- starter.

In view of your father's illness and your sibling's difficulties, I am wondering whether your parents might approach the local council to explore the possibility of an adapted rented property where all three are on the tenancy agreement.

This would enable them to sell the second property, pay off their debts and have some capital to supplement their income.