Parent buying house for child to buy back

travelephant

Hello from a long time lurker.

I've been looking into buying a house in the next 6 months or so, but an interesting property in the right area has come up for auction this month. I am neither financially ready to bid, nor would I be able to attend the auction.

My parents are open to buying the house for me, and in a few months time I would get a mortgage in order to buy it from them.

What should we be considering before deciding whether this is sensible or not? The main thing that has crossed my mind so far would be related to taxes, for example capital gains, but I'm also not sure what effect the process would have on getting the mortage in the first place. I am sure there are other things to be aware of, but what?

G_M

Apart from all the caveats about auctions, how wouldd you know you'd be able to get a mortgage on this property 'in a few months'? and what would happen if you couldn't?

Oh1 And of course there are all the extra costs associated with two purchases (legals, survey by parents/survey by mortgage lender; SDLT etc)

davidmcn

Most lenders won't lend if the current owner bought within the last six months. Also need to bear in mind why it's in an auction - is there something which makes it unmortgageable?

AdrianC

They already own their own home? So +3% on SDLT when they buy, then SDLT when you buy it from them... Unlikely to be any CGT, unless the value rises markedly in that period.

Why don't they just lend you the money to buy in your name, then you get a mortgage to repay them? They can bid on your behalf at the auction.

Remember that a bid is binding - in effect, you exchange contracts at hammer-fall - and you have 28 days to complete. Make sure you know everything you want to know BEFORE bidding. And don't get the red mist descending... Know what price you'll walk away. Them bidding for you may help prevent that.

xylophone

Are your parents prepared to be your mortgagee?

They would lend you the money so that you could buy the property - you would enter into a legally binding agreement (secured against the first charge they would take on the property) to repay the capital/interest to them?

BrassicWoman

easier if parents can give you a deposit and guarantee your mortgage, so you can buy in your own name. anything stopping that?

davidmcn

BrassicWoman wrote: »

easier if parents can give you a deposit and guarantee your mortgage, so you can buy in your own name. anything stopping that?

For this property probably the timescales involved in getting a mortgage offer, given that auction completion dates are usually a strict 28 days after the auction.

travelephant

G_M wrote: »

Apart from all the caveats about auctions, how wouldd you know you'd be able to get a mortgage on this property 'in a few months'? and what would happen if you couldn't?

It is a good question. I don't know for certain I'd be able to.

davidmcn wrote: »

For this property probably the timescales involved in getting a mortgage offer, given that auction completion dates are usually a strict 28 days after the auction.

Yes, that is it. I already have a sufficient deposit, but there is no way on earth I'd get a mortgage in time.

Tom99

[FONT=Verdana, sans-serif]Buy the property in your name with money provided by you parents but make sure you have a full survey and appoint a solicitor to go through the legal pack before the auction date.

[/FONT] [FONT=Verdana, sans-serif]If you are to be the buyer but can't attend the auction you may be able to bid online or appoint your parents as your proxy but that might need sorting out with the auctioneer before they bid on your behalf.[/FONT]

travelephant

AdrianC wrote: »

Why don't they just lend you the money to buy in your name, then you get a mortgage to repay them? They can bid on your behalf at the auction.

After discussing it, this is probably what will happen if we decide to go for it.

xylophone wrote: »

Are your parents prepared to be your mortgagee?

That might work in the short term, although I imagine it would come with its own potential complications?

Beardmidget

travelephant wrote: »

After discussing it, this is probably what will happen if we decide to go for it.


That might work in the short term, although I imagine it would come with its own potential complications?

This is definitely what should happen if your parents have the money and trust you. There are potentially tens of thousands of pounds you’d save by doing this. As long as you don’t intend to default, in which case it would make Christmas awkward!

In terms of complications, if you undertake this transaction formally, registering them as the first charge like a mortgage lender, then I can’t see that there would be an issue, even if something unexpected and terrible were to happen- if you, or they, were to suddenly pass away, then it would be clear whose estate owned what. (hopefully not!).

In terms of mortgage lenders giving you the cash to pay them back, doing it formally will make it more obvious that you really are repaying a ‘mortgage’ to them, not just planning on buying a Lamborghini with a wedge of cash they give you.

They will not gain a big tax liability, because if you remortgage as able and repay them the money they put in (with little or no interest), they won’t have gained, and as detailed above you won’t have to pay a second round of SDLT which they would even if it was BELOW SDLT threshold for you as a FTB.