Loan to value ratio - based on house value or purchase price?

mrochester

Hi all. 

For mortgage purposes, is the loan to value ration based on the value of a property or the purchase price?  I’ll be buying a property well below market value and want to know what sort of mortgage deal I’m likely to get. 

Many thanks. 

M. 

[Deleted User]

Whichever is the lowest.

mrochester

Deleted_User said:

Whichever is the lowest.

Thanks. 

And for the purpose of stamp duty, which value counts?

K_S

@mrochester Assuming that you are buying from an unconnected party, for mainstream lending, the LTV will be based on the actual purchase price for BMV purchases.

If the discount is due to you buying from a connected party, it may be a concessionary purchase in which case there are lenders who will calculate LTV based on the market value of the property.

For stamp duty, the actual purchase price is what's taken into account.

mrochester

K_S said:

@mrochester Assuming that you are buying from an unconnected party, for mainstream lending, the LTV will be based on the actual purchase price for BMV purchases.

If the discount is due to you buying from a connected party, it may be a concessionary purchase in which case there are lenders who will calculate LTV based on the market value of the property.

For stamp duty, the actual purchase price is what's taken into account.

I’m buying the property from my dad for a discounted price (approx £80k less than market value, at least). The purchase price takes me below the stamp duty threshold. 

K_S

mrochester said:

K_S said:

@mrochester Assuming that you are buying from an unconnected party, for mainstream lending, the LTV will be based on the actual purchase price for BMV purchases.

If the discount is due to you buying from a connected party, it may be a concessionary purchase in which case there are lenders who will calculate LTV based on the market value of the property.

For stamp duty, the actual purchase price is what's taken into account.

I’m buying the property from my dad for a discounted price (approx £80k less than market value, at least). The purchase price takes me below the stamp duty threshold. 

@mrochester That would be a concessionary purchase so there are lenders who will base the LTV on the market value as opposed to the discounted price.

mrochester

K_S said:

mrochester said:

K_S said:

@mrochester Assuming that you are buying from an unconnected party, for mainstream lending, the LTV will be based on the actual purchase price for BMV purchases.

If the discount is due to you buying from a connected party, it may be a concessionary purchase in which case there are lenders who will calculate LTV based on the market value of the property.

For stamp duty, the actual purchase price is what's taken into account.

I’m buying the property from my dad for a discounted price (approx £80k less than market value, at least). The purchase price takes me below the stamp duty threshold. 

@mrochester That would be a concessionary purchase so there are lenders who will base the LTV on the market value as opposed to the discounted price.

Thanks, and is the stamp duty still just based on actual purchase price?  I don’t want to get stung for trying to ‘avoid’ a tax!

theoretica

The other tax to look into is your dad's potential liability for capital gains, if it was not his main residence.  I believe this applies even when giving property away, so it might be based on market rates not what is paid.

K_S

mrochester said:

K_S said:

mrochester said:

K_S said:

@mrochester Assuming that you are buying from an unconnected party, for mainstream lending, the LTV will be based on the actual purchase price for BMV purchases.

If the discount is due to you buying from a connected party, it may be a concessionary purchase in which case there are lenders who will calculate LTV based on the market value of the property.

For stamp duty, the actual purchase price is what's taken into account.

I’m buying the property from my dad for a discounted price (approx £80k less than market value, at least). The purchase price takes me below the stamp duty threshold. 

@mrochester That would be a concessionary purchase so there are lenders who will base the LTV on the market value as opposed to the discounted price.

Thanks, and is the stamp duty still just based on actual purchase price?  I don’t want to get stung for trying to ‘avoid’ a tax!

@mrochester Yes, the SDLT will be based on the discounted price, not the market value. In any case, the solicitor will ensure that you are paying the right amount of SDLT.

mrochester

theoretica said:

The other tax to look into is your dad's potential liability for capital gains, if it was not his main residence.  I believe this applies even when giving property away, so it might be based on market rates not what is paid.

Thanks, I think he is aware that he’ll need to pay capital gains tax as he owns the property outright after inheriting it.