Right to Buy - buying in cash and then re-mortgage

tyty21

Hi all,

My parents and I currently live in a housing association home. They are in their 60s and so wouldn't really be eligible for a mortgage now.

They have the maximum right to buy discount and so we were wondering whether it would be possible for me to provide the money for us all to buy the property in cash. The three of us would be on the right to buy entitlement.

Once we own the property (presumably we could own as tenants in common) - could my parents transfer their share to me? I'm interested in how that transfer could be effected. I wouldn't see it as a depravation of assets (for care home costs purposes) given I would have provided all of the cash to purchase the property. 

I would then plan on remortgaging it back out in my own name at 90% LTV and they would live there rent free on an ongoing basis and then using the mortgage funds to purchase my own property. 

Considerations are around:

1) How we get from a point where all three of us own the property post purchase from HA, to a point where only I own the property (such that my parents don't need to be on / be responsible for any mortgage payments when I remortgage);

2) Will mortgage company mortgage out at 90% of the purchase price we paid or market value? I would assume market as its very clear we haven't just got a good deal on the open market or anything but that the market value was agreed to be x but we got for y using RTB discount. 

3) Need to pay back any RTB discount? I don't think so as we wouldn't be selling here (just re-mortgaging). Re the transfer to me, I will already have shared in the original purchase so I wouldn't see it as a sale. In addition, the RTB website seems to suggest you can transfer the property to family members and preserve the discount.

4) IHT concerns - the house is worth under the £325k limit so I think this would be ok (although again, I would be providing the initial cash to purchase and would be sharing in the RTB so I think at least a large part would count as my own assets anyway).

Any advice on feasibility / structure would be greatly welcomed.

Many thanks.

Slithery

It's a terrible idea.

Your remortgage can't be a standard residential as you won't be living there. A let to buy mortgage will have a maximum LTV much less than 90%, but will expect you to be actually getting a rental income as well as probably not allowing you to let to family.

There's also the fact that your parents would be giving up a secure tenancy that has the possibility of moving to a more suitable property if they need it. Who is going to be responsible for all the maintenance costs?

tooldle

Which of you owns the tenancy?

Snookie12cat

I think you are forgetting the extra 3 or 4% stamp duty, you can't really have 2 residential mortgages and you can't get a BTL mortgage and rent it to family. So you need to buy it outright and keep it like that. 

They could get a mortgage as some lenders lend into retirement. 

MaryNB

Snookie12cat said:

I think you are forgetting the extra 3 or 4% stamp duty, you can't really have 2 residential mortgages and you can't get a BTL mortgage and rent it to family. So you need to buy it outright and keep it like that. 

They could get a mortgage as some lenders lend into retirement. 

They can't get a standard BTL but they can get a regulated BTL to let to family (provided they can stump up the deposit of course). 

Snookie12cat

MaryNB said:

Snookie12cat said:

I think you are forgetting the extra 3 or 4% stamp duty, you can't really have 2 residential mortgages and you can't get a BTL mortgage and rent it to family. So you need to buy it outright and keep it like that. 

They could get a mortgage as some lenders lend into retirement. 

They can't get a standard BTL but they can get a regulated BTL to let to family (provided they can stump up the deposit of course). 

They are going to expect them to pay rent though which doesn't seem like the plan? 

strawb_shortcake

I don't think a 90% remortgage would work, you would need the HA to sign off a deed of postponement but with a 90% mortgage plus the liability of the RTB discount your likely to be over the house value

tyty21

Slithery said:

It's a terrible idea.

Your remortgage can't be a standard residential as you won't be living there. A let to buy mortgage will have a maximum LTV much less than 90%, but will expect you to be actually getting a rental income as well as probably not allowing you to let to family.

There's also the fact that your parents would be giving up a secure tenancy that has the possibility of moving to a more suitable property if they need it. Who is going to be responsible for all the maintenance costs?

I could get a residential mortgage for the time being by continuing to live there so 90% LTV would be possible. Even if switching to a BTL mortgage, taking 75% of the FMV back out would mean getting all of the money back that I had advanced to buy it from the HA.

Rental payments could be an option but not if lenders aren't going to want you to lend to family. 

I would obviously be responsible for the maintenance costs. 

tyty21

tooldle said:

Which of you owns the tenancy?

My parents. I would share in the RTB under the 12 month residence rule.

Snookie12cat

tyty21 said:

Slithery said:

It's a terrible idea.

Your remortgage can't be a standard residential as you won't be living there. A let to buy mortgage will have a maximum LTV much less than 90%, but will expect you to be actually getting a rental income as well as probably not allowing you to let to family.

There's also the fact that your parents would be giving up a secure tenancy that has the possibility of moving to a more suitable property if they need it. Who is going to be responsible for all the maintenance costs?

I could get a residential mortgage for the time being by continuing to live there so 90% LTV would be possible. Even if switching to a BTL mortgage, taking 75% of the FMV back out would mean getting all of the money back that I had advanced to buy it from the HA.

Rental payments could be an option but not if lenders aren't going to want you to lend to family. 

I would obviously be responsible for the maintenance costs. 

Call a few brokers and ask, they will tell you if they have any lenders who will let you rent to family. 
If you can afford the crazy inflated stamp duty, then it might work. Use the calculator on gov website, as depending the property value you intend to purchase next it could be very expensive and scupper your plans.

If you are a FTB though you will also lose any FTB discount in stamp duty if you did this.

tyty21

Snookie12cat said:

I think you are forgetting the extra 3 or 4% stamp duty, you can't really have 2 residential mortgages and you can't get a BTL mortgage and rent it to family. So you need to buy it outright and keep it like that. 

They could get a mortgage as some lenders lend into retirement. 

Yes that is true re the extra stamp duty - although even an extra 3% is still more than offset by the maximum RTB discount.