Advice on mortgage with valuation below selling price

pkonline

Hi
I am buying my sister's property for a low price - essential what she paid for it. That is approx 195,000. She partly funded the original purchase with an equity loan that needs paying up on sale.
The value of the property is now 260,000. My mortgage broker advised me to arrange a mortgage and the sale price is 260,000 as that's the value, but they are aware the purchase price is 195,000.
Apparently the sale price cannot be 195,000?
The reason is that the equity loan pay back with be much higher for my sister which is not ideal!
Thank you

jamielutz1987

@pkonline If it's the Help2Buy equity loan, then this is what the guidance says about selling it and paying off the equity loan -

"You can sell your home at any time and an independent valuer must decide what it is worth. Your property should be sold on the open market at the prevailing market valuation. If you do sell your property for more than the prevailing market value then the amount due to Homes England under the equity loan will be their percentage value of the actual sale price. Homes England will not agree to release its charge over the property for sales at less than market value."

Based on that, I doubt there's any way to get out of repaying the equity loan without basing it on the current market value of 260k.

onthemend88

Sounds like a Help to Buy Equity loan wherein you have to payback 20% of the current value of the property (£260,000). Not what the property was bought for in the beginning (£195,000). It is how the government make their money. 

Your sister would have been made aware of the need to payback 20% of the property value when she took the equity loan out, and would have signed a contract to confirm these were the terms and there is no way out of it. 

Equally, if the property had decreased in value, or stayed the same value, she still would have paid 20%. 

blue_max_3

Can you hold off the sale? There is potential for a value reduction in the next few months.
Maybe you can rent off your sister if she needs some money now.
This isn't guaranteed, but a good bet.

onthemend88

blue_max_3 said:

Can you hold off the sale? There is potential for a value reduction in the next few months.
Maybe you can rent off your sister if she needs some money now.
This isn't guaranteed, but a good bet.

But what if it is in a sought after area and prices go up? 

It's a big gamble. 

D.L

Can you buy it for £260k and then later your sister can give you the difference?

blue_max_3

onthemend88 said:

But what if it is in a sought after area and prices go up? 

It's a big gamble. 

You should still be better off overall. But how was this valued? Was it an estate agents valuation? Maybe you should get a proper RICS valuation. It will cost you a little, but may be worth it. Tip: they tend to be influenced by your valuation to some extent, so sure if you slipped in £240k you may find that goes on the report!