Buying Parents House

snaeem155

Hi All,
Just needed some advice on what to do with my parents property (where I currently live).

They have had an interest only mortgage for years now and the outstanding amount is £256,000, this mortgage ends in 2 years.

I always planned to buy the house from my parents and for them to live with me (it's a cultural thing, I'm totally happy for them to do so). Both are effectively retired since the pandemic began, one is 66 other 64.

The property is probably valued at £600,000, they would be selling to me for the outstanding mortgage amount.

I have read up on care home fees avoidance etc. however, that was never an option and it was always the case they would live with me as siblings moved out (and don't want any part of my parents property).

What would be the best way to approach this as I have £30k in savings (which was for this sole reason).

Appreciate it been asked many times before.

Thanks

FaceHead

Does your income support you borrowing the required 226k plus fees?

1. Get yourself a mortgage broker, as some lenders are funny about sales where people are related.

2. Once you've got a mortgage agreed in principle, both you and your parents instruct solicitors

3. Consider if you want to do searches, surveys etc. 

4. Your solicitors will guide you through the rest of the process. 

Have you considered inheritance tax (you'd remain liable for IHT on the gifted portion of the house if your parents live there until they die)? You've considered care home fees - you're on dodgy ground there - whilst the intent of gifting part of the property isn't obviously to avoid care home fees it's clearly a consideration, so they could get caught out. What if you died first? What would happen to the house and will your parents interests be protected?

macman

Are you in a position to service the new mortgage of £256K?

snaeem155

FaceHead said:

Does your income support you borrowing the required 226k plus fees?

1. Get yourself a mortgage broker, as some lenders are funny about sales where people are related.

2. Once you've got a mortgage agreed in principle, both you and your parents instruct solicitors

3. Consider if you want to do searches, surveys etc. 

4. Your solicitors will guide you through the rest of the process. 

Have you considered inheritance tax (you'd remain liable for IHT on the gifted portion of the house if your parents live there until they die)? You've considered care home fees - you're on dodgy ground there - whilst the intent of gifting part of the property isn't obviously to avoid care home fees it's clearly a consideration, so they could get caught out. What if you died first? What would happen to the house and will your parents interests be protected?

I earn £70k a year so getting a mortgage should be ok I believe from what I have Googled online.
If something were to happen to me first then the house would go to one of my siblings who would then move in.

macman

Are your parents happy with a situation whereby they have absolutely no security of tenure except as allowed by you? As excluded occupiers, they have less rights than even a lodger. Should you fall out, for whatever reason, they could be homeless at 48 hours notice (don't think it can't happen: it can and does). In the event of your demise, can you be 100% sure that whoever inherits the property (your siblings) would allow them to remain?

I'm guessing that you are single: what happens if you marry, have a family, need to move away for a different job etc?

From the IHT perspective, if they gift you 60% of the property and then live there rent free, then that is clearly a gift with reservation, and that percentage will remain within their estate for tax purposes, and be subject to IHT at 40% should their estate exceed the threshold.

snaeem155

I totally understand and we have discussed such issues and they aren't a concern for either me or my parents.

I am indeed single and if I were to marry/have a family it wouldn't impact the household, we have 5 bedrooms so ample space.

As for work I wouldn't leave my local-ish region for work, its the go to area for my industry.

You are right and I've seen it happen first hand, so I agree with your points wholeheartedly.

But the situation is what it is, so I'm having to explore this step.

yksi

What if your future partner does not want to live with your parents? You don't actually know, for sure, what decision you would then make. People can and DO put their partners first. The idea that you would give up on marrying your husband or wife because they won't live with your parents, is ludicrous.

And number two, what happens if one of your parents develops dementia - do you realise that with certain types of dementia it is impossible to care for a person on your own while working - and even if you quit working, it is too much for one person to actually handle safely? Will they have enough money for either a visiting carer or for residential care?

Have any of you thought about the idea of selling the property, buying your parents a tidy small property which they can handle (mortgage free!) and you buying a nearby property to be close to them?

macman

Fine, but bear in mind that your parents are still relatively young: they could easily live another 30 years, when your own circumstances may be quite different: do you really expect to be in the same job, or even industry, three decades from now?

What was their plan to redeem the mortgage if this scheme did not go ahead, other than a considerable downsizing?

AdrianC

snaeem155 said:

Just needed some advice on what to do with my parents property (where I currently live).

They have had an interest only mortgage for years now and the outstanding amount is £256,000, this mortgage ends in 2 years.

And they haven't planned for that...? They have no savings at all towards it?

I always planned to buy the house from my parents and for them to live with me (it's a cultural thing, I'm totally happy for them to do so).

It's very easy to say that, but have you ever dealt personally with anybody with advanced dementia...?
They don't know you, they're doubly incontinent, they think you're attacking them, they're physically violent...
Sometimes, a care home is simply the best place for somebody, no matter how noble the motives.

Both are effectively retired since the pandemic began, one is 66 other 64.

The property is probably valued at £600,000, they would be selling to me for the outstanding mortgage amount.

They would be gifting you £344k, then. Meanwhile, SDLT would be based on the market value, because it's a transaction between closely related individuals.

I have read up on care home fees avoidance etc. however, that was never an option and it was always the case they would live with me as siblings moved out (and don't want any part of my parents property).

What would be the best way to approach this as I have £30k in savings (which was for this sole reason).

Simply, you need a mortgage for £226k+, depending on how much of your savings you want to keep. It'll be very low LtV, since the property is worth £600k - so ~37.5%. On £70k earnings, that should be straightforward.

FaceHead

AdrianC said:

SDLT would be based on the market value, because it's a transaction between closely related individuals.

I understood that stamp duty was based on the consideration, and only the market value in corporate transactions. So the 256k in this case. Without first hand experience there could easily be something I'm not aware of. Could you provide a link to the guidance where this is mentioned please.

getmore4less

No SDLT on gifts of (Parts) of property.