Purchasing multigenerational property, how to structure.

LokiOfNZ

So, the wife and I are looking to combine households and property wealth with her parents. Basically sell our house, sell their house and buy a property large enough to provide a large family home and a self contained annex.

After a long search we've found a property that will physically work, large family house with a huge detached garage easily convertible to an annex.

So now the money shuffle.
The new house purchase price is £1,250,000. Obviously there is also stamp duty and moving fees. Plus the annex build. So final expense will be well in excess of that.
Parents house is worth approx £1,000,000, with no mortgage. They are retired and cannot borrow.
Our house is worth approx £900,000, with a £300,000 mortgage. We do not want to borrow any more.
Although the combined value of our homes seems to be approx £1.9mil the parents have said for inheritance tax purposes they would gift from their house sale £300k to my wife's brother, so he fells looked after, and £300k to my wife to be used on the house purchase. Which effectively means the parents are putting in approx £400k and we £1.2mil for a total of £1.6mil, which should be more than we need for the above purchase and build.

Having said that, the parents have said in order to speed the new house purchase and not have it rely on both our houses being sold, they can use further funds of theirs to add to the sale price of their house to purchase the new house. Then our house can be sold as and when. This works as the parents house is likely to sell much faster than ours and for a vendor to be chained to two sales makes us very unattractive buyers.

So while the parents can purchase the new house themselves, obviously the final position we need to get to is all 4 of us (me, wife, both parents) being on the title deed as owners of the property and with our £300k mortgage ported over to the new house and everyone happy with the final resting place of the remaining funds/leftovers.

Question is, how best to structure this, in particular with regard to our mortgage and stamp duty?

Do we say that on the sale of the parents house, they keep £400k, gift £300k to the brother, gift my wife £300k and then using their other funds loan us the remainder of the purchasing costs (ie £1.25mil + stamp + fees - their £400k - wifes £300k gift), so around £610k to £650k. Thus we are purchasing the new house with funds in portion to the intended final position. Then upon the eventual sale of our house will we be able to port our mortgage, securing it against the new house but actually paying back the parents (£300k of mortgage funds + £310k to £350k from sale equity)? Our remaining sale equity can be used for the build.
Does that work from the banks perspective, since the mortgage funds aren't going to a vendor but to a loan holder, but they would still be secured against the property at a great LTV?
Would that expose us to paying extra stamp duty since for a time the wife and I would technically own 2 houses, or parts thereof?

Or is it simpler to say the parents are funding the entire house purchase from their own house sale plus other funds, paying stamp duty at the normal rates since they're selling and moving their main home. And after our house is sold we're "buying" a large portion of the new house from them, porting our mortgage over and paying them as vendors?
However that also would seem to expose the wife and I to paying stamp duty again on the new house?
Unless we could say we're purchasing our portion for £1, however I'm guessing there are rules against that.

I guess however we balance the actual cash out is up to us but the main issues is around;
1) How will the bank view securing the mortgage against the house but the funds not going to the normal place.
2) What is the best way to handle stamp duty given we're selling 2 main homes in exchange for 1 main home, but the timing between the 2 sales in all likelihood will be different.

Any advice would be appreciated. Let me know if you need to know more detail or if my numbers are off.

Please no advice about the future, eg what if they get sick etc. We're trying to solve the current problem and get the house we want. We have decided as a family the potential future issues are outweighed by the family benefits in the meantime.

silvercar

....Which effectively means the parents are putting in approx £400k and we £1.2mil for a total of £1.6mil, which should be more than we need for the above purchase and build.

I agree with this. So at the end of the day you and your wife would own 75% of the enhanced property - and should have that documented.

1) How will the bank view securing the mortgage against the house but the funds not going to the normal place.

Easiest is to say that the funds are for building work, which is true.

2) What is the best way to handle stamp duty given we're selling 2 main homes in exchange for 1 main home, but the timing between the 2 sales in all likelihood will be different.

If you initially buy it in parents name and then do a transfer of equity when you sell your property there will be an SDLT hit. I'm also not sure how easy it is to get a mortgage when some of the people on the deeds won't be on the mortgage (and too old to secure a mortgage).

davidmcn

As above I think a fundamental issue from a lender's point of view is how easily they'd be able to kick everybody out and repossess the property - they don't like non-borrowing parties to be resident, particularly those who might claim a financial interest in the property.

LokiOfNZ

davidmcn wrote: »

As above I think a fundamental issue from a lender's point of view is how easily they'd be able to kick everybody out and repossess the property - they don't like non-borrowing parties to be resident, particularly those who might claim a financial interest in the property.

Just to address this point since its come up twice now, the one thing the bank has said thus far is that if all 4 names are on the title deed then all 4 names can be (and need to be) on the mortgage. In terms of 2 of them being retired etc, as long as their incoming is not servicing the mortgage then their age and longevity on the mortgage doesn't matter.
So it sounds like the bank will do the mortgage, its just about how to get it onto the new property.

letitbe90

LokiOfNZ wrote: »

Just to address this point since its come up twice now, the one thing the bank has said thus far is that if all 4 names are on the title deed then all 4 names can be (and need to be) on the mortgage. In terms of 2 of them being retired etc, as long as their incoming is not servicing the mortgage then their age and longevity on the mortgage doesn't matter.
So it sounds like the bank will do the mortgage, its just about how to get it onto the new property.

Is that confirmed? I just have two anecdotal experiences in the past few years where a non-paying person could not be added to a mortgage due to age limit. One was as a joint name, one was as a third name.

LokiOfNZ

letitbe90 wrote: »

Is that confirmed?

Directly from the account managers (emailed) mouth.

letitbe90

LokiOfNZ wrote: »

Directly from the account managers (emailed) mouth.

I would get a decision in principle with all four of you on it as confirmation that it meets the lenders criteria, before proceeding with this idea.


No harm in getting one now as it is only a soft credit check - but at least it will go through the lenders criteria engine to produce it.

silvercar

Another option would be to put the property in your names and have the parents have a charge on the property for their mortgage. The charge would have to go on after the mortgage so the lender has the first charge.

A thought on SDLT, could you buy it in all your names initially and pay the extra SDLT which would be refunded when your property was sold, providing it was within the timescales allowed.

LokiOfNZ

silvercar wrote: »

Another option would be to put the property in your names and have the parents have a charge on the property for their mortgage. The charge would have to go on after the mortgage so the lender has the first charge.

The parents don't have a mortage. Or do you mean their loan to us? So parents loan us a huge amount, which we use to purchase, porting the mortgage as well, and parents have a 2nd charge against the property with us owing them? Sounds like it could work.

silvercar wrote: »

A thought on SDLT, could you buy it in all your names initially and pay the extra SDLT which would be refunded when your property was sold, providing it was within the timescales allowed.

Yes had thought about this after reading about applying for refund. It might have to be the way but would be very nervous about HRMC holding an extra £40k on the hope they agree to refund.

davidmcn

LokiOfNZ wrote: »

Yes had thought about this after reading about applying for refund. It might have to be the way but would be very nervous about HRMC holding an extra £40k on the hope they agree to refund.

Has something given you the idea it's discretionary? They're required to refund it in the same way that you're required to pay tax.

SmashedAvacado

LokiOfNZ wrote: »

Directly from the account managers (emailed) mouth.

i have done this exact thing with my parents. All on the mortgage - all on the deeds but only my income used for the loan application purposes.

We then had a deed of trust between us as owners about how the property was to be held
this included a clear understanding of ownership (in terms of percentage)
contribution of improvements (is this equal or in same proportion as ownership)
contribution to maintenance and repair and outgoings
and also an agreement of an earliest selling date (so we are clear on how long this was intended to be locked in) - you can clearly override this but having an agreement was helpful