Help to Buy or Buy off my parents

tick1986

Hi all,


I am thinking about buying a house (well have been for a while). My parents approached me to ask whether I would like to buy a house they currently own and rent out. The value is circa 210k but they would be happy to sell it to me for 180k. The 30k would then be deemed as a deposit (so I am told by a mortgage advisor.)


The other options is they sell the house separately and loan me the money for a deposit and I use it for the help to buy scheme. This would allow me to a buy a house around 280k.


Which would be the better option? The mortgage value to me would be roughly the same but I would then owe money to the government so I am assuming I would then be worse off in the future?


Any help greatly received.

ACG

Surely this is one of those questions which only you can answer.
Do you want a new build or do you want the parents btl house? The 2 are hugely different.

Also another slight issue is that not many lenders will accept a loan as a deposit. So you should look in to that beforehand.

Tootling

Buy your parents. It's at cut price. Wait for a few years, sell it and then move upwards.

We used help to buy and i don't regret it, but it's what we needed to do at the time in order to afford one. We've since sold that house and thankfully got rid of the help to buy.

With htb you have to have a solid plan how to pay off that givernment loan unless you want to throw hundreds of not thousands of money at the government every year.

They own a% of your house. You can remortgage to pay it off but only certain lenders allow for such a thing.

It worked for us, i think it is a good idea for some people.

But I think you have, in the long term a better deal buying your parents house.

I guess in the end it depends a bit on the house though, does it meet your requirements?

00ec25

appreciate that your parents are going to have to pay Capital Gains tax based on a value of 210k if they sell it to you, not the cash you pay them. That is because of the connected person rule and the requirement to thus use market values not actual cash price

if parents sell to a stranger and give the cash to you, parents won't be taxed on an extra 30k of gain that they won't have as cash

tick1986

Didn't know that, thank you for that info. Is there a decent website I can look into that?

Windofchange

Was about to say, the taxman will be all over this if your parents are selling to you at a cut price. There is also a thread running currently about someone wanting to do exactly what you are suggesting - using equity as a deposit, and how the banks are not having any of it. Don't know how sure your mortgage person is that you can do this, but doesn't seem to be straight forward.

With help to buy, you have to bear in mind that the value of the government's equity loan could well rise over the 5 years that you are paying no interest. You owe them 20% (40 in London) of whatever the market value is. If a 200k house rises to 220k in 5 years, then the £40k that the government lends you will now be £44k. You will then be paying interest ontop of this. Something to bear in mind when thinking about remortgaging down the line.

Ultimately though it is all going to depend on what you want. Do you actually want to live in your parents BTL, or is it a run down hole? If it's not somewhere you see yourself living then I would go down the new build route. How about option C - if they are selling the place anyway, could they just buy a new build with that and you rent it from them? They still have a property with a regular income stream from you, you have a nice new house and instead of paying a mortgage to the bank, you pay a grand a month or whatever to your parents.

steampowered

From a purely financial perspective, it sounds like the BTL is a much better deal.

With the BTL, you won't have the government owning part of your property and you aren't paying a premium to get a new build. Also, with the BTL, your parents are effectively gifting you the deposit rather than lending it.

Of course if you would prefer to live in the new build that may sway you.

Yes your parents will have to pay capital gains tax based on the market value of the property (not the undervalue) but I don't think that's rocket science.

tlc678910

Hi,
Following on from WindOfChange above do your parents own the buy to let outright or do they have a mortgage? If they own the property outright and don't require a lump sum you could explore the possibility of a private mortgage with them. You would pay them directly each month boosting their income but avoiding all the interest you would pay to the bank. A solicitor can set this up to be official I believe with your parents having a charge against the house in the same way that a mortgage company do.
Tlc