Buying a house from my parents

CoffeeAndBaklava

Hi! First time poster, grateful for any advice in a slightly complicated situation...

We are renting in London, but have no hope of ever being able to buy here, and have made the decision to move to the north, where my partner is going to train as a nurse. As he'll be a student, and I'm currently freelancing in a bunch of different jobs, we're obviously not in a position to get a mortgage.

My parents have just inherited some money, and have very generously offered to buy a house and let us live in it until my partner finishes uni, when we can apply for a mortgage to buy it from them at the same price the bought it for. We're incredibly lucky to be in this position, but I'm finding it quite difficult to find out much about the legality of the situation. My parents are both retired and don't have huge amounts of savings (apart from this unexpected inheritance), and I don't want to leave them liable for extra taxes as it'll be a second home, or get three years down the line and find out we can't get a mortgage on somewhere we already live. Can anyone advise? The house we/they'd be buying would be around 100,000, so not eligible for stamp duty as far as I know. So I guess my questions are:

Will my parents be liable/at risk in any way (financial/legally) by this arrangement?

AND, when the time comes, will we be able to get a mortgage on a house we''re already living in, have home insurance/pay bills and council tax for?

thanks in advance!

CoffeeAndBaklava

I should add- they won't be making any money from the house, and they own their own house, mortgage paid off- not sure if this makes a difference

cte1111

If the house is going to be owned by your parents, with their name on the land registry, then they will be liable for the second home stamp duty of 3% (for houses costing up to £125k). The only way to avoid this would be for your parents to effectively give you the money and you buy the house in your name. Presuming you don't own any other property, then it would be free of stamp duty.

xylophone

£100,000 will be enough to buy the house outright?

Your parents could lend you the money and take a first charge against the property?



They should see a solicitor about drawing up the loan agreement.



You and your partner would take out insurance so that the loan could be repaid in the event of death before repayment.

Mardle

One option they could look into is a private mortgage where they lend you the money to buy the house but you agree to pay it back over a period of time. They would have a charge on the house until the loan was paid off or you remortgaged to pay them back. They and you would obviously need specialist advice but it's an option to consider.

booksurr

if the property is purchased in the name of your parents:
a) they will have to pay 3% stamp duty as already mentioned
and
b) when you buy it from them, your parents will have to pay Capital gains tax at 18% or 28% on the difference between what they paid for it and what it is worth on the open market at the time you buy it, ie the gain in value will be taxed. You are "connected persons" so tax law says the "sale" by them is at its market value, not what you physically pay them so they could get a big bill if the house has gone up in value..

much better to go down the private mortgage route as advised by others above

that way the house is in your name so: no stamp duty for parents or you, no CGT for parents or you, and no income tax for parents provided you only pay back exactly what you borrowed, ie there is no interest charged by the parents on top of the amount they loaned you

CoffeeAndBaklava

Thanks all, that's really helpful!

I don't have a problem paying stamp duty if that's necessary- we're really privileged to be in this position, and I don't feel hard done by paying 3% tax on £100,000. The capital gains tax issue is a bit worrying though, if it will be applied even if they're not making a profit- definitely something to consider.

thanks again

CoffeeAndBaklava

The issue with the private mortgage route is that, while it would be cheaper in the long run, the priority is to be able to give them back the money in 3 years, rather than in small amounts over potentially the next 25 years.

Although I guess an option- as Mardle suggested- would be to remortgage when it's time to pay them back. Lots to look into...

ThinkingOutLoud_2

Ok is I guess this is the key question. If they need the whole sum back in three years - can they afford to lend you it all now?

Might be worth working out how much you think you could afford to give them every month in due course (instead of paying a mortgage with interest). E.g. £500 a month gives them £6000 to play with every year.

If they had that money coming back each month, they would be better off every month than they are now.

Also, at £6k a year, you would pay them back in just over 16 years. I imagine your rent down south is sadly higher than that too.

And as above there would be fewer complications and taxes implicated.

Or do they have other plans for a larger sum?

CoffeeAndBaklava

They can definitely afford to lend us the money, they've paid off their own mortgage and have enough to live comfortably day to day. As far as I know they don't have any plans for the lump sum; it's more that they have both been incredibly sensible and frugal all their lives, and I want them to be able to enjoy their retirement. That probably won't mean fancy holidays etc, but I'd like them to have the opportunity to do that if they decide they want to. Also, it means a lot to them to be able to help us out like this, and while my siblings aren't currently in a position to need/want the same, it would be nice if they could help them out if they needed it too at some point down the line.

So, basically the ideal situation is to use this money to get established now while we can't get our own mortgage, and then get it back to them as soon as possible, without any nasty legal or financial surprises for them. Probably a controversial thing to say to a bunch of money saving experts (!), but even though it will cost me more, I'd much rather be in (manageable) debt to a bank than to my parents, long term. Maybe another option is to buy it in our name outright, and then remortgage it in 3 years?

ps. ThinkingOutLoud you're absolutely right, I'm sure it will surprise nobody to hear that my (now below market) rent down south is double that...

getmore4less

CoffeeAndBaklava wrote: »

The issue with the private mortgage route is that, while it would be cheaper in the long run, the priority is to be able to give them back the money in 3 years, rather than in small amounts over potentially the next 25 years.

Although I guess an option- as Mardle suggested- would be to remortgage when it's time to pay them back. Lots to look into...

Them buying it has the same issue and a shedload more costs along the way.

the main issue with any attempt by you to raise funds will be your deposit.

A broker should be able to comment on the lenders pickiness of a remortgage for say 80% of a property value if

A. you have owned outright for 3 years.
B. concessionary purchase off your parents in 3 years.