Buying parents property using their equity

Max1990

Hello,

Hoping you can help or offer some guidance

My mum (56) has a mortgage (£105k) on a property (£240k) and the monthly payments are around £850.

She doesn't earn much, but makes up the mortgage by renting the annexe for £400 per month.

Recently she's put the house on the market with the desire to buy a much cheaper property and considerably reduce her mortgage payments and term.

My brother and I don't think this is the best idea because she will ultimately live in a much smaller property and lose the rental income from the annexe.

Is there a way we can buy the house and get either a but to let mortgage, or standard residential mortgage by using the equity she has in the property (£134k) as the deposit? Idea being that we could have the mortgage as interest only, or over a much longer term (30 years) considerably reducing the monthly payments and keeping the house.

Is 'renting' the property back to her an issue? There's a chance we could borrow the deposit money to buy the house and then re-pay once the equity has been released to mum who will use it to repay the loan. Does this make a difference?

She would also prefer this route.

Alternatively, can we inherit then property or mortgage now and then just remortgage?

Thanks, Max

Max1990

Should have added: I earn £34k and my brother earns £25k .. I own a part buy part rent property (40% share) so looks like we'd get hit on the second home stamp duty tax if we were able to buy it!

tlc678910

If your mum wants to downsize the property will be smaller but it will be all hers.

Buy to let mortgages don't usually let family live in the property.

Residential mortgages don't usually like the former owner to live there.

If you and your brother would like your mum to keep the house could you simply subsidise your mums mortgage e.g. could you afford £100 a month each? Also helping her out with more when the annexe is vacant.

I don't like the sound of your mum turning what was her equity in the house into rental payments to you. Eventually she will spend her nest egg on rent and be left with nothing, rather than the smaller property she would have if she had downsized.

Was this house your child hood home and you have an emotional attachment to it that is making it hard to let go?

Tlc

Max1990

Hi Tlc,

Thank you so much for posting,

So.. The plan was for her to only pay the mortgage cost that my brother and I would incur - we wouldn't profit. In fact by my calculations if we went interest only then the rent from the annex would more than cover these so she'd be in a great place!

The house actually has little sentimental value.. She moved after the divorce and had to buy something quickly before she became un-lendable due to age. But it does have a second bedroom for when we come to stay which is important and houses in the area for £130-£150k are mostly just one beds. We're also keen to not lose the income from the annex.

Currently I don't have much expendable income to support - even £100. I moved into my flat less than a year ago and just about getting straight with the costs and payments associated - that said I have a good credit rating and income, but the outgoings to match!

If anyone can see a way we can bring down to repayments would be great. Seems such a shame with the potential deposit that we can't buy and have the income from the annexe and a small contribution from mum (if required) to cover the payments ..

Pincher

The monthly repayment on £104k sounds high.

Whatever happens, a re-mortgage sounds good.
Good timing, bargains galore.

National Counties Building Society did demand that my parents move out when I bought from my mother. They signed everything the Building Society wanted, including a dummy mortgage application between her and the Building Society ?? They also promised to move out etc.

And then we carried on living exactly like before.

The lawyers just want to cover their !!!!!!. They are not crazy enough to actually check my parents moved out.

Beware of the seven year potentially exempt rule. There is no inheritance tax because it's below the threshold, but if the house goes up in value, and she dies before seven years, who knows. If the HMRC is really nasty, they could say the gifting is tax avoidance, because she still benefited from the house after gifting, unless she pays a commercial rate rent. Try £7,500 a year: Let a Room Allowance.

If you have two houses, you only get main residence relief on one. May need to choose and declare it.

foxy-stoat

Get her to re-mortgage with another provider, my mortgage payments are just over £500 a month for £95,000.

She is better off selling and buying a smaller place outright with no Mortgage.

She really shouldnt be selling her £240,000 house for £105,000 for you and your Brother to buy so you can let it back to her, its kind of win/win for you and your Brother and lose/lose for your Mum.

If you do not have £100 a month spare to give your Mum then you shouldnt be taking out another Mortgage, as you will need to pay a few thousand in legal fees and Stamp Duty.

David_White

It's called a Concessionary purchase.

There are lenders that would allow you to purchase the property at a reduced price with your parents remaining in the house but not many.

Some people seem to think parents gifting properties to their children is a bad thing but I don't really see the issue if everyone involved is happy with the deal.

Max1990

Thanks all, interesting points.

There is £135 equity in the property but we'd only need a 40% deposit so approx £96k - the £40k left over would be used for stamp duty etc, and then the remainder for her credit cards.

She can't remortgage much of a better deal because of her age - she wouldn't get much more than a 10 year deal, so £105k over 10 years is already £875 per month no?

My brother and I could potentially get a 30 year mortgage with the 40% deposit and joint salaries reducing the monthly payments

Mum would still get full enjoyment from the property but pay a considerable amount less, potentially profit from the rent from the annex less the new smaller mortgage amounts!

Am I missing something, would this not work I practice?

Thanks again..

Brock_and_Roll

As often with such ideas, the OP also needs to research "Deprivation of Assets" which may way be an issue should the parents require means-tested benefits (e.g. long term care) in the future.