Confusing Stamp Duty situation in co-ownership

Ilovesquash

One of my friends, a first time buyer, is trying to get on the property ladder to buy a house in Oxford with his wife and kid. They don’t have enough for a deposit on a decent house there (prices are ridiculous) so I offered to help them out and go in 50:50 so they can have a reasonable deposit and then I own half the property.

It’s getting very confusing trying to work out if this is a feasible proposal from a stamp duty point of view, as I already own my own house (with a hefty mortgage), so am not a first time buyer.

Any advice on how this could be managed? They are looking at houses for about £400k so if we are forced to pay stamp duty at my rate it would be £22k, which is just not doable. At their rate it would be £5k. I’ve been trawling google but haven’t found anything relevant. Maybe some grey area around unequal shares e.g. 49:51?

Thanks in advance.

AdrianC

Yes, the higher rate of SDLT would be owed.

Anyway, you're planning on raising the 50% how? Are their lenders happy with this? Would you be jointly and severally liable should the other party default?

00ec25

Ilovesquash wrote: »

One of my friends, a first time buyer, is trying to get on the property ladder to buy a house in Oxford with his wife and kid. They don’t have enough for a deposit on a decent house there (prices are ridiculous) so I offered to help them out and go in 50:50 so they can have a reasonable deposit and then I own half the property.

It’s getting very confusing trying to work out if this is a feasible proposal from a stamp duty point of view, as I already own my own house (with a hefty mortgage), so am not a first time buyer.

Any advice on how this could be managed? They are looking at houses for about £400k so if we are forced to pay stamp duty at my rate it would be £22k, which is just not doable. At their rate it would be £5k. I’ve been trawling google but haven’t found anything relevant. Maybe some grey area around unequal shares e.g. 49:51?

Thanks in advance.

it is very simple, if you have even the tiniest share of the legal ownership of the property then you are JOINT purchasers and the higher rate SDLT will apply to the whole purchase price as you already own a property which you are not replacing as a home. If your friend is a FTB, then that is not good for them as they won't get any FTB incentive and will end up paying the HR along with you. SDLT is never split according to shares owned.

if you do not have a share of the ownership there are other ways the deal may come off but not without possibly impacting whether your friend will get a mortgage at all, for example:

- you make an outright gift of the money to them and sign a letter confirming it is not repayable (I somehow don't think you want to do that?)

- you and friend take out a joint mortgage but you are specifically not named on the property deeds. Naturally therefore you will not have a legal claim to any share of the property when sold so somewhat risky for you if you expect to get your money back and/or make a profit.

- you make a private loan to the friend with, or without, interest repayable on whathever terms you agreed. Friend will be unable to have the same size of mortgage from a lender because your loan reduces what he can borrow. Friend is sole purchase so pays FTB SDLT, you have legally enforcible loan agreement to get you profit from. Friend unlikely to be able to afford 400k of debt, so that ain't gonna happen!

Aylesbury_Duck

Sounds bonkers to me. You have a “hefty” mortgage of your own and you’re going into another mortgage with a 50% share of (presumably) something upwards of a £300k commitment. The fact that you can’t afford your share of the extra SDLT, which is “only” £8,500, should be telling you this is a daft idea.

JoJo1978

I would respectfully retract your offer to them, as others have indicated, SDLT is the least of the issues you need to be considering. It sounds like encouraging them to look farther afield than Oxford and commuting in if necessary is a better way that you can help them to get into the ladder on their own.

G_M

The solution is for you to give them either a gift or a loan so they have enough of a deposit to buy the property themselves.

You will not be a joint owner so no additional SDLT.

If it's a loan, their mortgage lender may not like it - risk of them defaulting the mortgage due to other debts.

And of course, you can't guarantee they'll repay as/when agreed unless you take them to court (as oint owner you'd have had more security). You could put a 2nd Chrge on their Title though.

As a gift, you won't get the money back.

Ilovesquash

Aylesbury_Duck wrote: »

Sounds bonkers to me. You have a “hefty” mortgage of your own and you’re going into another mortgage with a 50% share of (presumably) something upwards of a £300k commitment. The fact that you can’t afford your share of the extra SDLT, which is “only” £8,500, should be telling you this is a daft idea.

I can comfortably afford the extra stamp duty thanks, it’s my friends who can’t, so it’s not really daft. I just don’t want to pay that much if there is a better way, and to not price them out of buying. I can’t use it for my own mortgage because I’d have to pay a lot early repayment fees.

Thanks to those who actually answered the question with constructive responses rather than condescension. Looks like it’s a tricky idea to accomplish without more or less giving them my money for nothing.

Cakeguts

What would they get if they bought a non decent house?

00ec25

Cakeguts wrote: »

What would they get if they bought a non decent house?

arrested for being indecent :beer: