Inheritance buyout mortgage

Sundaymorning6

Morning all

Can anyone share experience of applying for a mortgage for inheritance buyout? 

The property was valued at probate some time ago. Assuming the mortgage provider would always come out to value the property if they are offering a mortgage. 

To what extent would a conveyancing solicitor need to be involved? I’m aware I transfer ownership if it was cash but unsure with mortgage.

Thanks

user1977

The lender will need a solicitor to do the same due diligence as for any other purchase. 

Thrugelmir

The lenders solicitor may only deal with another solicitor representing the late estate. 

Sundaymorning6

Ok Thanks. The market value of the property now is a lot more than the probate value. Would the buyer be legally obliged to buy it at the market value? Would the mortgage provider only lend based on the market value?

Thrugelmir

Are you the only beneficiary of the estate? 

Sundaymorning6

Thrugelmir said:

Are you the only beneficiary of the estate? 

No joint beneficiaries. I would be the seller other party is the buyer.

user1977

Sundaymorning6 said:

The market value of the property now is a lot more than the probate value. Would the buyer be legally obliged to buy it at the market value? Would the mortgage provider only lend based on the market value?

Depends on the lender and how much equity you're putting in.

canaldumidi

So who is buying? Not a (part) Beneficiary? Not family? ie an open market sale?

If open market, why sell below market value. If family etc, yes you can sell at whatever price you agree, though the seller (Executor /Administrator of the Estate) has a duty to get the best price on behalf of the Beneficiary who could otherwise claim the difference(his loss) from the Executor.

The mortgage lender will lend based on the current market value I believe, not the price paid (and certainly not on the Probate value).

If the price is much greater than at Probate, there may be Capital Gains Tax to pay on the increase. I believe (someone will confrm or correct me!) if the sale is to family at below market value, CGT is based on market value, not price paid.

Sundaymorning6

We are joint beneficiaries and the other beneficiary will be buying my half. So naturally I would want the price to be market value and not below. But i think the other party will expect the price to be probate value. I am also executor. So a mortgage lender will just provide a mortgage for half the market value? 

RAS

What is the difference between the probate value and the market value? £10k is a big increase on a £90k house but not if it'd £1m.

And listen when the other posters point out that you will be hit with a Capital Gains tax claim at market value if you under price.

canaldumidi

RAS said:

And listen when the other posters point out that you will be hit with a Capital Gains tax claim at market value if you under price.

CGT is payable on the gain between date of probate and date of sale irrespective of whether the sale price is market value or not. It's a tax on the gain in capital value.

In this case I think it's only due on half the market value - The Executor distributing (give) half the property to Beneficiary A who inherits it (no CGT), and selling half the property which would otherwise have gone to Beneficiary B. But this is a complex tax area so get advice, perhaps from a decent conveyancing/probate solicitor as part of the sale.

Sundaymorning6 said:

We are joint beneficiaries and the other beneficiary will be buying my half. So naturally I would want the price to be market value and not below. But i think the other party will expect the price to be probate value. I am also executor.

Depends on the wording of the will, but presumably it's along the lines of "Jo Bloggs and Mary Bloggs inherit the residue of the Estate" ie after

* any other bequests are made eg 'my fur coat to my god daughter'

* all estate debts are paid off

* all inheritance tax paid

* all savings and investments realised (ie sold/turned into cash value)

* all probate fees paid - ie solicitors, house maintenance like insurance, CT etc during probate period

So simply using the probate value of the house is clearly not appropriate. Use market value at time of house sale, probate is wound up and estate distributed to Beneficiaries.

If the will literally leaves the named property as a bequest equally to the named Beneficiaries (never wise in a will), then arguably you could use the probate value, but then

* who inherits other assets?

* who pays off the estate debts if any? what if there's an existing mortgage?

* what would have happened if the deceased had moved house between writing will and dying?

* what if not enough alsewhere to pay inheritance tax - who pays/how?

So a mortgage lender will just provide a mortgage for half the market value? 

No, don't think so, though presumably the buyer will only need to borrow half the arket value (or less they put in their savings). The lender will value the property (market value at the time of the mortgage application) and be willing to lend acording to their normal criteria ie subject to applicant's salary/ability to pay, and up to say 90% of the valuation.