Buying parents home below market value

2 Posts

Hi,
I am hoping for some guidance/advice/pointer in the right direction as I am not too experienced on this topic.
In a nutshell, the scenario is that my parents got into financial difficulties a few years ago and ended with an interest only mortgage on their house which is on a variable rate. With the recent rate rises, their monthly payment has doubled and is almost unsustainable.
They have enquired about moving back onto a fixed rate repayment mortgage but unfortunately they cannot afford it despite their financial situation improving over the last couple of years.
I am considering buying the house from them for the value of the remaining mortgage (significantly below market value) and putting the house onto a mortgage which is a) fixed rate b) pays off the mortgage.
Some supporting data:
- Outstanding mortgage value: £290k
- Current House Value: £615k Approximately
- Initial mortgage searches show I can get a mortgage which comfortably brings the monthly payment back into the sustainable range
- I am 29, no kids, not married, I live at home and earn enough to be able to get a mortgage for £260kish and I have savings to cover the deposit to get to the £290k mortgage value.
Really appreciate any guidance from the community here, a) is this feasible b) are there any hidden implications I should be aware of e.g. if I wanted to buy my own house in a couple of years.
I am hoping for some guidance/advice/pointer in the right direction as I am not too experienced on this topic.
In a nutshell, the scenario is that my parents got into financial difficulties a few years ago and ended with an interest only mortgage on their house which is on a variable rate. With the recent rate rises, their monthly payment has doubled and is almost unsustainable.
They have enquired about moving back onto a fixed rate repayment mortgage but unfortunately they cannot afford it despite their financial situation improving over the last couple of years.
I am considering buying the house from them for the value of the remaining mortgage (significantly below market value) and putting the house onto a mortgage which is a) fixed rate b) pays off the mortgage.
Some supporting data:
- Outstanding mortgage value: £290k
- Current House Value: £615k Approximately
- Initial mortgage searches show I can get a mortgage which comfortably brings the monthly payment back into the sustainable range
- I am 29, no kids, not married, I live at home and earn enough to be able to get a mortgage for £260kish and I have savings to cover the deposit to get to the £290k mortgage value.
Really appreciate any guidance from the community here, a) is this feasible b) are there any hidden implications I should be aware of e.g. if I wanted to buy my own house in a couple of years.
0
Latest MSE News and Guides
Childcare budget boost
More support for children from nine months and those on Universal Credit
MSE News
Replies
So what is your parent's situation then? You own the house which they live in for free as your guest? Should for any reason you sell the house they could be homeless?. What would happen if you died, became bankrupt, got married, or simply fell out with them.
One potential issue about which I know very little is whether you could get a mortgage under those conditions. If you stop paying the mortgage for any reason the mortgage company must have the right to sell the house to get the debt repaid. They are not going to like being seen throwing a couple of OAPs out onto the streets.
Perhaps a better solution is for them to sell the house, repay the mortgage and still have enough money left over to buy something smaller for themselves. You would have to find somewhere else to live but at least they would have complete security. One additional option for them, depending on their age, would be to buy something better with a lifetime mortgage where the capital is repaid on their death.
But the deal doent seem great for you either. The financial side has already been coverd - it looks like you are offering them what for you is no better than a fair price, it's not below market value. You would be buying a house far too large for your own needs and taking on the responsibility of paying a high council tax, maintenance costs, heating costs etc etc. You would lose your first time buyer status should you want to buy somethng more appropiate for your needs at some time. Finally depending on their age you could be tied to each other for the next 20-30 years.
There are further considerations should they require benefits as giving away half a £600K house could be seen as deprivation of assets and then living for free could have inheritance tax implications.
You should note that this site doesn't check my status as a Mortgage Broker, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
If you could get a mortgage lender at that time, you will face second property stamp duty which is 3% higher.
If your parents have a "foreseeable need" for some form of care, the transaction could be considered to be depriving them of an asset worth £325k.
https://www.downslaw.co.uk/blog/qa-can-i-buy-mums-house-under-market-value/
As others have already commented, your parents would be best selling the property on the open market for £615K, clearing their debt and then buying a smaller/cheaper property with the £325K left over.