Does concessionary purchase harm future value?

hans_moleman

My partner and I have been living in a one bedroom flat in London owned by my parents for the last 8 years. Since my parents first bought it, the value has basically doubled, so that when we were finally in a position to buy a flat like ours (settled jobs etc) we couldn't afford to.

My parents have now (very generously) offered to sell the flat to us at a discount of £50,000 off the estate agent's valuation of £325,000. And Halifax have agreed to lend us a mortgage on the understanding that it's a "concessionary purchase" -- ie. we'll be buying the flat for £275,000.

Here's my question: looking around at Right Move, Zoopla and other websites like that, I'm aware that the historical sale value plays a really big role in how these sites estimate a house's market value.

Also, as a person, I know that if I saw that a certain flat was sold for, say, £50,000 less than a similar flat 5 years ago, I would expect it to be on the market for c. £50,000 less than a comparable flat now.

As the sale price will be recorded and made public as £275,000, and potential buyers won't know that that was a discounted price (until they speak to an estate agent?) is there a risk that we might be writing off some of that value? Or am I being paranoid?

Thanks!

Owain_Moneysaver

I think you're being paranoid.

A 15% difference in price is fairly small, and London has such a variety of house types and locations that such an exact valuation is almost impossible.

And the estate agents have probably "valued" the flat high anyway, in the hope of getting the instruction. If you got a proper valuation from a RICS surveyor it might come in 15% lower anyway.

Also, as the property isn't going to be listed on Rightmove etc for this sale, future buyers will have no way of knowing what condition the property was in when you bought it. It might have been in poor condition, sold for less, and you did a lot of work on it to bring it up to full market value.

Linton

You are being paranoid. Most buyers are only interested in the property and the current price compared with equally good alternatives. What the price was several years ago is of little relevence. If need be you can always explain at the time were you to be asked.


The same thing happens when part houses are sold, eg when someone buys half the house they dont already own from an executor or on divorce. The records just show that half price.

ethank

If you were using a a government scheme like Help to Buy, you would need to get a RICS valuation survey in order to work out the value to be repaid. As you've been advised earlier, getting an EA valuation is not precise enough.

Don't worry about future value as although some people will review the price you bought at, it will not dictate what it can be sold for in the future.

AnotherJoe

hans_moleman wrote: »

My partner and I have been living in a one bedroom flat in London owned by my parents for the last 8 years. Since my parents first bought it, the value has basically doubled, so that when we were finally in a position to buy a flat like ours (settled jobs etc) we couldn't afford to.

My parents have now (very generously) offered to sell the flat to us at a discount of £50,000 off the estate agent's valuation of £325,000. And Halifax have agreed to lend us a mortgage on the understanding that it's a "concessionary purchase" -- ie. we'll be buying the flat for £275,000.

Here's my question: looking around at Right Move, Zoopla and other websites like that, I'm aware that the historical sale value plays a really big role in how these sites estimate a house's market value.
The key word being estimate. As often as not uselessly. As you've just demonstrated .

Also, as a person, I know that if I saw that a certain flat was sold for, say, £50,000 less than a similar flat 5 years ago, I would expect it to be on the market for c. £50,000 less than a comparable flat now.
Why??? A property is worth what it's worth as assessed by the price of similar properties nearby recently. . Historical selling prices are literally irrelevant. If you as a potential buyer said (in effect) "you got this for cheap from mum and dad 5 years ago so I expect that to be passed on to me" you can imagine vendors responses. Questioning your sanity basically. Ever seen an auction show on TV? Have you noticed they never say "fred bought this Rembrandt at a car boot so he's oniy selling for twenty quid rather than the £100m is otherwise worth.

As the sale price will be recorded and made public as £275,000, and potential buyers won't know that that was a discounted price (until they speak to an estate agent?) is there a risk that we might be writing off some of that value? Or am I being paranoid?

Thanks!

Not paranoid, wholly inexperienced and unrealistic about what house buying entails

Tom99

Are your parents aware that they face a Capital Gains Tax bill based on the open market value of the flat, not the price they sell to you at because you are a connected party.
Since you say the value has doubled the CGT bill could be quite sizeable, maybe £25k+.

AdrianC

hans_moleman wrote: »

Also, as a person, I know that if I saw that a certain flat was sold for, say, £50,000 less than a similar flat 5 years ago, I would expect it to be on the market for c. £50,000 less than a comparable flat now.

Why?

The key word there is "comparable". If Flat A and Flat B are comparable, why would there be any difference at all in their value?

How does a previous sale, years ago, make the slightest difference at all to today's value?

Tom99

hans_moleman wrote: »

As the sale price will be recorded and made public as £275,000, and potential buyers won't know that that was a discounted price (until they speak to an estate agent?) is there a risk that we might be writing off some of that value? Or am I being paranoid?
Thanks!

Its quite possible the sale price will not be made public on websites like Rightmove and Zoopla because as part of the SDLT return there is a question asking if the parties are connected, which you are.

kingstreet

Tom99 wrote: »

Its quite possible the sale price will not be made public on websites like Rightmove and Zoopla because as part of the SDLT return there is a question asking if the parties are connected, which you are.

I agree. Such a sale should not be added to the Land Registry figures, similar to a repo or estate sale.

zagubov

I doubt you're paranoid but you're over-worrying.

If people knew what you're buying it for right now, that price will just be a historical oddity by the time you sell it.

Presumably, you're staying in it for a few years. But even if you're thinking of starting a family very soon and looking for somewhere bigger, nobody will care what the price previously was, as it's London.

Incidentally, if you are starting a family, the further you move out of London, the better.