Buying parents house, extending and moving in with them

Toddy16

Hello,

My husband and I are currently renting privately which is making saving a deposit impossible. Even if we could raise a deposit, houses in our area are too expensive for us to afford.
My husband is just entering his 2nd year of self employment which adds a further complication as lenders will probably ignore his income right now.
We do want to buy asap so we can get a decent interest rate but the above means we can't do this without help.

My husbands parents have very generously said that we can buy their house off them at a discount, move in with them and use part mortgage money to extend. The idea being we will get a mortgage in my name for £120k, (the house is worth approx £215k) use £90k for the building work, kitchen and bathroom etc, give them £30k. We would then re mortgage in 5 to 10 years to give them another £90. So they would be selling us the house for £120k payable over a period of time.

My questions are:


[*]Will lenders go for this with them remaining in the house and the fact that the majority of the cash will be used for building work?

[*]Would lenders lend to us with equity in lieu of a deposit?

[*]Can the parents remain on the deeds until we completely buy them out?

[*]Can we get something on the deeds to say they are entitled to remain in the house until death (their peace of mind)?

I am aware that if my husbands parents need carers in the future (distant, they are only 60 and very fit) we will have to pay for this which is fine.

We could move in with them first to enable us to get a deposit together if absolutely necessary but this would be a little cramped.

Also, we all very close and spend most of our time together so with the extension, we have no concerns about this working..... if we can get a lender that is 😊

This would help them too as they are struggling with the upkeep of the property and have debts to pay. My mil has a poor credit history and this would enable her to clear the debt and have an improved standard of living.

The property is currently mortgage free.

Any advice would be gratefully received, we don't know where to start.

Thank you

T16

da_rule

Why will the mortgage just be in your name? If you are going to own the property together with your husband, your share is only worth half of the £215k, which is less than the mortgage amount.

There are two different scenarios here:
1) They stay on the title and have a share of the house until you completely buy them out, in which case the mortgage company would probably want them to be party to the mortgage.
2) You buy the property off of them for £30k with an informal agreement that you'll still owe them £90k. This could be put as a charge against the property on the title but could seriously hamper any mortgage.

Also, as they are gifting you the remainder of the property but still living there there may be impacts on inheritance tax and potential care home fees if they are living there rent free as it will be a gift with a reservation of benefit.

Toddy16

Hi,

Thanks for this.

The mortgage would be in my name as my husband is newly self employed, I am the main earner and my mil has a poor credit history so couldn't remortgage. I have been told having my fil on the mortgage would be detrimental due to his proximity to retirement age.

If we borrowed £120k would the lender be ok with us only using £30k of this for the purchase?

We are aware of the care costs issue but less clear about inheritance tax. One of the reasons for us doing this is so that we can be there for them as they get older.

It's a bloody minefield this!

Cakeguts

.If you move into the house with the parents you aren't buy the house off them. You will just have shared ownership. I can't see how you would get a mortgage for this.

da_rule

Would this way be easier?
1) Parents give you the property for free.
2) You then get a mortgage on the property for the £120k (you're looking at a LTV of about 56%).
3) The mortgage company won't really mind what you're doing with the money if they're sure there's enough equity in the house to cover it and you can afford the payments.
4) You then gift the parents £30k and you use the remaining £90k to do your work.
This does mean that the reservation of benefit part is larger when it comes to inheritance tax.

Mossfarr

Lots of other things to consider.
What if your in-laws divorced and the house needed to be split between them? What if one of them passed away and the remaining partner remarried? How would you feel about sharing your home with the new husband/wife?
I know you said they are both fit and healthy but what if either (or both) of your in-laws need full time care in the near future? You could end up financially crippled as you could be paying for full time care for over 20 years. There is also the issue of deliberate deprivation of assests to consider if you are unable to fund their care.
You also need to think about your MIL's history of poor money management, what if she didn't clear her debts and decided to blow the lot and continue overspending?

What you are planning I did twenty five years ago and believe me it is not easy to all live together no matter how well you get on at the moment. Elderly people become more and more demanding as they age, you may well end up feeling as though you have no life of your own. I certainly do.

Nobody can say what lies ahead, it may work wonderfully for you, I honestly hope it does - but if I had my time again I definitely would not do it.

Cakeguts

It isn't in the best interests of your husband's parents. What happens if you and your husband split up and you own part of his parent's house?

da_rule

Also, reservation of benefit means that when the parents die, the value of the house (at the date of death) forms part of their estate for inheritance tax purposes.

This is only avoidable if they either pay market rent or they cease to receive the benefit (i.e. start paying rent or move out) at least 7 years before they die.

Toddy16

That might work yes, thank you. I can see how that would be more attractive to the bank and less complicated. Hopefully a solicitor could draw something up to say they are entitled to stay etc .

I'll have a chat with them tomorrow and look into inheritance tax.

Cheers

Keep_pedalling

From the numbers given the in laws are way below the IHT nil rate bad so that is not going to be an issue.

However no one should give their major assets away, and there are several things that could go horribly wrong with this idea.

If you can raise a £120 mortgage, then why not move in with them on a temporary basis rent free so you can build up a deposit for your own place? It should not take you that long to build up a suitable deposit if you have no rent to pay.

da_rule

Getting something to say they are entitled to stay would be a bit of a long shot and potentially not worth the paper it is written on. The mortgage company will want a right over the property and would want to have the ability to kick everyone out should the mortgage not be paid. Also, as they would be living their, the mortgage company should get them to sign a non-owning adult occupier declaration. This is essentially a declaration stating that they have no interest in the property and will not claim any interest in the property that would supersede the interest of the mortgage company.