Private house purchase - how best to use equity?

mawk86

My partner and I earn £66k PA between us. 

We are buying our first house from a family member for £120k. The value of the house is £220k. 

We want to borrow an additional £60- £80k for building work. 

A mortgage advisor has advised that we will not need a deposit, as there is so much equity in the house. 

She also advised that we put the ‘official purchase price’ down as £180/£200k, and ask the family member to put the building work money in a current account in their name, and use that account to pay for building work, to avoid paying additional tax. 

Seems a complicated way around things, are their any alternatives we can look at? 

lonibra

I've used many MBs over the past many years. None of them would ever even come close to giving this kind of advice and detailed jiggery-pokery.

Is this what YOU want to try out to get more money out of the lender?

mawk86

lonibra said:

I've used many MBs over the past many years. None of them would ever even come close to giving this kind of advice and detailed jiggery-pokery.

Is this what YOU want to try out to get more money out of the lender?

No - far from it. 

If it was what I wanted to do, why would I be asking if there was an easier way around it?! 

K_S

@mawk86 Not exactly sure what you're trying to achieve here but the most straightforward way to do a capital raise would be to first buy the property using a mortgage which permits a concessionary purchase. And then in 6 months time do a capital raise remortgage and raise the funds you need. You could potentially do a remortgage before 6 months but it would be a smaller pool of potential lenders.

Off of the top of my head, I don't know if you can do a concessionary purchase and raise cash at the same time but hopefully another broker will comment on that.

The stamp duty you pay will be based on the price you buy the property at.

The capital gains tax your seller pays (if any) will be based on the market value of the property 220k irrespective of what you buy it at.

user1977

mawk86 said:

She also advised that we put the ‘official purchase price’ down as £180/£200k, and ask the family member to put the building work money in a current account in their name, and use that account to pay for building work, to avoid paying additional tax. 

What additional tax? I don't see an obvious saving.